CLOSURE ACTIVITIES

Part I - Theories: Encircle the letter of the correct answer. Any form of erasures will render your
answers invalid.

1. Under the cash basis of accounting (a) revenue is recorded when earned (b) accounts receivable
would appear in the statement of financial position (c) depreciation of assets having an economic
life of more than one year is not recognized (d) the matching principle is ignored.

2. Incomplete accounting records using only a cash book is characteristic of (a) cash basis (b) accrual
basis (c) single entry system (d) double entry system

3. Compared to the accrual basis of accounting, the cash basis understates income by the net
decrease during the accounting period of (a) both accounts receivable and accrued expenses (b)
accrued expenses but not of accounts receivable (c) neither accounts receivable nor of accrued
expenses (d) accrued receivable but not of accrued expenses

4. The premium on a four-year insurance policy expiring on December 31, 2021 was paid in total on
January 1, 2018. If the original payment was recorded as a prepaid asset, the balance in the prepaid
asset account on December 31, 2019 would be (a) lower than the balance on December 31, 2018
(b)lower than the balance on December 31, 2020 (c) the same as the balance on December on
December 31, 2021 (d) the same as the original payment

Part II – Problems: Write your answers on the blank provided for each item number. Final answers
with any form of erasures or the like will be considered incorrect. Answers with no solutions will
not be considered.

Problem A- The following information pertains to Kadali Naman Company sales for the current year:

Cash sales
Gross 2,000,000
Returns and allowances 100,000

Credit sales
Gross 3,000,000
Discounts 150,000

On January 1, customers owed Kadali Naman P1,000,000. On December 31, customers owed Kadali
Naman P750,000. Kadali Naman uses direct writeoff method for bad debts. No bad debts were
recorded in the current year.

1. Under the cash basis accounting, what amount of sales revenue should Kadali Naman report for
the current year? 5,000,000

AR-Jan 1 1,000,000
Add: Credit Sales 3,000,000
Total 4,000,000
Less: AR-Dec 31 750,000
SD 150,000 900,000
Collections 3,100,000
Cash sales-net (2,000,000-100,000) 1,900,000
 Total sales- Cash Basis 5,000,000

Problem B- Bonusto Company reported sales revenue of P4,600,000 in its income statement for the
year ended December 31, 2019. Additional information is as follows:

December 31, 2018 December 31, 2019

Accounts receivable 1,000,000 1,300,000
Allowance for uncollectible accounts 60,000 110,000

Bonusto wrote off uncollectible accounts totaling P20,000 during 2019.

2. Under the cash basis of accounting, what amount should be reported as sales revenue for 2019?
4,280,000

AR- Dec 31, 2018 1,000,000

Add: Sales 2019 4,600,000
Total 5,600,000
Less: AR-Dec 31,2019 1,300,000
W-off 20,000 1,320,000
Collections-Cash Basis Sales Revenue 4,280,000

Problem C- Alamkoto Company began the current year with the following:

Net accounts receivable 900,000

Allowance for doubtful accounts 100,000

During the current year, the following events occurred:

Accounts written off 120,000

Cash sales 700,000
Sales on account 3,000,000
Bad debt expense recognized 200,000
Written off-recoveries 50,000

At the end of the current year, the entity showed a balance in accounts receivable of P1,680,000
after the allowance for doubtful accounts.

3. Under the cash basis, what amount should be reported as sales for the current year? 2,720,000

Allo. for d/a, beg. 100,000 AR-beg 1,000,000

BD expense 200,000 Sales on account 3,000,000
Recoveries 50,000 Total 4,000,000
Total 350,000 AR-end (1,910,000)
W-off (120,000) W-off (net recoveries) (70,000)
Allo. For d/a, end 230,000 Collections of AR 2,020,000
Cash Sales 700,000
Sales-Cash Basis 2,720,000
 * AR end +allowance end (1,680,000 +230,000)

Problem D- Data below were taken from the comparative trial balance of Kayakoto Company. The
books are kept on the accrual basis. The expenses included depreciation of P200,000 and
amortization of P100,000.

2019 2018
Accounts receivable 4,500,000 5,000,000
Interest receivable 20,000 50,000
Inventories 8,000,000 9,000,000
Prepaid insurance 100,000 50,000
Accounts payable 7,500,000 7,000,000
Accrued expenses 500,000 300,000
Net sales 25,000,000
Interest revenue 150,000
Cost of goods sold 15,000,000
Insurance expense 1,000,000
Other expenses 2,000,000

4. What total amount was paid for expenses during the current year? 2,550,000

Insurance exp 1,000,000

Other exp 2,000,000
Depreciation (200,000)
Amortization (100,000)
PI-2019 100,000
PI-2018 (50,000)
AE-2019 (500,000)
AE-2018 300,000
2,550,000

5. What total amount of cash payment was made during the current year? 16,050,000

Invty-beg 9,000,000 Purchases 14,000,000

Purchases 14,000,000 Add: AP beg 7,000,000
Total 23,000,000 Less: AP end (7,500,000)
Invty-end (8,000,000) Payments to trade creditors-Cash Basis 13,500,000
COGS 15,000,000

Paid Expenses 2,550,000

Payment to trade creditors 13,500,000
Total cash payment 16,050,000
Problem E- Selected accounts, cash receipts and disbursements of Kayato Company for 2019 are as
follows:

December 31 January 1
Accounts receivable 250,000 300,000
Notes receivable 150,000 100,000
Accounts payable 120,000 160,000
Notes payable 200,000 150,000
Prepaid insurance 30,000 10,000

Cash receipts for 2019 include:

Cash sales 500,000

Collections of accounts, net of discounts of P40,000 1,800,000
Collections of notes receivable 80,000
Bank loan- one year, dated December 31, 2019 100,000
Purchase returns and allowances 60,000

Cash disbursements for 2019 include:

Cash purchases 130,000

Payments of accounts payable, net of discounts of P20,000 1,500,000
Payments of notes payable 400,000
Insurance 220,000
Other expenses 650,000
Sales returns and allowances 50,000

6. Under accrual basis, what amount should be reported as net sales? 2,330,000

AR-Dec 31 250,000
NR-Dec 31 150,000
Collections of AR 1,800,000
SD 40,000
Collections of NR 80,000
Total 2,320,000
AR-Jan 1 (300,000)
NR-Jan 1 (100,000)
Sales on account 1,920,000
Cash sales 500,000
Gross sales 2,420,000

Gross Sales 2,420,000 Sales on account-SD

SD (40,000) (1,920,000 - 40,000) 1,880,000
SR (50,000)
Net Sales 2,330,000 or Cash sales-SR
(500,000- 50,000) 450,000
Net Sales 2,330,000
7. Under accrual basis, what amount should be reported as net purchases? 1,880,000

AP-Dec 31 120,000
NP-Trade:
NP-Dec 31 200,000
Bank Loan on Dec 31 (100,000) 100,000
Payments of AP 1,500,000
PD 20,000
Payments of NP 400,000
Total 2,140,000
AP-Jan 31 (160,000)
NP-Jan 31 (150,000)
Purchases on account 1,830,000
Cash Purchases 130,000
Gross Purchases 1,960,000

Gross Purchases 1,960,000

PD (20,000)
PR (60,000)
Net Purchases 1,880,000

or

Purchases on account- PD
(1,830,000-20,000) 1,810,000

Cash Purchases- PR
(130,000- 60,000) 70,000
1,880,000

Problem F- YorWelcome was incorporated on January 1 of the current year by issuing share capital
with par value of P50,000,000 for P60,000,000.

The other transactions that affected the cash account during January were:

Land and building were purchased for P25,000,000 with a downpayment of P10,000,000. A one-
year note was signed for the remainder.

A check was written for P4,500,000 to pay for equipment.

A check of P1,500,000 was written to acquire software.

One piece of computer equipment was sold at its original price and the cash collected was deposited
in the entity’s checking account.

The balance of the checking account on January 31 was P45,000,000.

8. What was the sale price of the computer equipment? 1,000,000

 Cas receipts:

Issue of SC 60,000,000
Sale price of equipment (squeeze) 1,000,000
Total cash receipts 61,000,000
Cash disbursements:
L&B 10,000,000
Equipment 4,500,000
Software 1,500,000 16,000,000
Cash balance January 31 45,000,000

Problem G- Easy Round Company had total assets of P4,000,000 and shareholder’s equity of
P2,080,000 at the beginning of the year. During the year, assets increased by P520,000 and liabilities
decreased by P820,000.

9. What is the shareholder’s equity at the end of the year? 3,420,000

Asset beg -SHE beg = Liabilities beg

4,000,000 - 2,080,000 = 1,920,000
520,000 (820,000)
4,520,000 - 3,420,000 = 1,100,000 end

Problem H- On January 1, 2019, Gibawey Company showed total assets of P5,000,000, total
liabilities of P2,000,000 and contributed capital of P2,000,000. During the current year, the
corporation issued share capital of P500,000 par value at a premium of P300,000. Dividend of
P250,000 was paid on December 31, 2019. On December 31, 2019, total assets amounted to
P7,500,000 and total liabilities amounted to P3,200,000.

10. What is the net income for the current year? 750,000

31-Jan 31-Dec
Total Assets 5,000,000 7,500,000
Total Liabilities 2,000,000 (3,200,000)
Equity 3,000,000 4,300,000
Inc in equity (4,300,000 - 3,000,000) 1,300,000
Add: Div paid 250,000
Total 1,550,000
Less: Issue of SC at a premium (500,000 + 300,000) 800,000
Net Income 750,000