Requirement (a): Journal entries
November transactions:
Nov. 1, Cash 100,000
20x1 Owner’s equity 100,000
to record the owner’s investment to the business
Nov. 1, Equipment 72,000
20x1 Cash 72,000
to record the acquisition of equipment for cash
Nov. 1, Prepaid insurance 24,000
20x1 Cash 24,000
to record the prepayment of insurance
Nov. 12, Purchases 30,000
20x1 Cash 30,000
to record the acquisition of inventory for cash
Nov. 14, Cash 30,000
20x1 Sales 30,000
to record cash sales
December transactions:
Dec. 1, Notes receivable 24,000
20x1 Sales 24,000
to record sale in exchange for note
Dec. 5, Purchases 4,000
20x1 Accounts payable 4,000
to record the acquisition of inventory on account
Dec. 26, Accounts receivable 34,000
20x1 Sales 34,000
to record sale on account
Dec. 27, Accounts payable 2,000
20x1 Cash 2,000
to record the payment of account payable
Dec. 29, Cash 20,000
20x1 Accounts receivable 20,000
to record the collection of account receivable
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Requirement (b): Posting
ASSETS
Cash Inventory, beg.
Nov. 1 100,000 beg. 0
72,000 Nov. 1
24,000 Nov. 1
Nov. 14 30,000 30,000 Nov. 12
Dec. 29 20,000 2,000 Dec. 27
Bal. 22,000 Bal. 0
Accounts receivable Notes receivable
Dec. 26 34,000 20,000 Dec. 29 Dec. 1 24,000
Bal. 14,000 Bal. 24,000
Prepaid insurance Equipment
Nov. 1 24,000 Nov. 1 72,000
Bal. 24,000 Bal. 72,000
LIABILITIES
Accounts payable
Dec. 27 2,000 4,000 Dec. 5
2,000 Bal.
EQUITY
Owner’s equity
100,000 Nov.1
100,000 Bal.
INCOME EXPENSES
Sales Purchases
30,000 Nov. 14 Nov. 12 30,000
24,000 Dec. 1 Dec. 5 4,000
34,000 Dec. 26
88,000 Bal. Bal. 34,000
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Requirement (c): Unadjusted trial balance
Entity A
Unadjusted Trial Balance
December 31, 20x1
Accounts Debit Credit
Cash ₱22,000
Accounts receivable 14,000
Notes receivable 24,000
Inventory, beg. 0
Prepaid insurance 24,000
Equipment 72,000
Accounts payable ₱2,000
Owner’s equity 100,000
Sales 88,000
Purchases 34,000
₱190,000 ₱190,000
Requirement (d): Adjusting entries
(i) Depreciation expense [(72K ÷ 4 yrs.) x 2/12] 3,000
Accumulated depreciation 3,000
to record the depreciation expense for the year
(ii) Insurance expense (24K x 2/12) 4,000
Prepaid insurance 4,000
to recognize insurance expense
(iii) Interest receivable (24K x 10% x 1/12) 200
Interest income 200
to accrue interest income
(iv) Inventory, end. 21,000
Income summary 21,000
to recognize the ending inventory
(v) Bad debts expense 2,000
Allowance for bad debts 2,000
to record bad debts expense for the period
(vi) Salaries expense 20,000
Salaries payable 20,000
to accrue salaries expense incurred but not yet paid
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Requirement (e): Worksheet
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Requirement (f): Closing entries
Dec. Income summary 0
31, Inventory, beg. 0
20x1 to close beginning inventory to income summary
Dec. Sales 88,000
31, Interest income 200
20x1
Purchases 34,000
Depreciation expense 3,000
Insurance expense 4,000
Bad debts expense 2,000
Salaries expense 20,000
Income summary (‘squeeze’) 25,200
to close income and expense accounts to income summary
Dec. Income summary (see T-account below) 46,200
31, Owner’s equity 46,200
20x1 to close the income summary to equity
Income
summary
21,000 see AJE (iv) above
see closing entry
25,200
above
46,200 Bal.
Requirement (g): Balance sheet and Income statement
Entity A
Balance Sheet
As of December 31, 20x1
ASSETS
Cash ₱22,000
Accounts receivable 14,000
Allowance for bad debts (2,000)
Interest receivable 200
Note receivable 24,000
Inventory 21,000
Prepaid insurance 20,000
Equipment 72,000
Accumulated depreciation (3,000)
TOTAL ASSETS ₱168,200
LIABILITIES
Accounts payable ₱2,000
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Salaries payable 20,000
TOTAL LIABILITIES 22,000
EQUITY
Owner's equity 146,200
TOTAL LIABILITIES &
EQUITY ₱168,200
Entity A
Income Statement
For the two months ended December 31, 20x1
Sales 88,000
Cost of goods sold:
Inventory, beg. -
Purchases 34,000
Total Goods Available for
Sale 34,000
Inventory, end. (21,000) (13,000)
GROSS PROFIT 75,000
Interest income 200
Salaries expense (20,000)
Depreciation expense (3,000)
Bad debts expense (2,000)
Insurance expense (4,000)
PROFIT 46,200
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