Exercise 4: ADJUSTING ENTRIES – MERCHANDISING BUSINESS

Problem 1

John Bala Company

Unadjusted Trial Balance
31-Dec-19

Cash 31,000.00  
Accounts Receivable 83,000.00  
Merchandise Inventory 627,000.00  
Prepaid Insurance 54,000.00  
Office Supplies 68,000.00  
Office Equipment 370,000.00  
Accumulated Depreciation   50,000.00
Accounts Payable   58,000.00
Bala, Capital   517,000.00
Bala, Withdrawals 87,000.00  
Sales   2,675,000.00
Sales Returns and Allowances 26,000.00  
Sales Discounts 23,000.00  
Purchases 1,512,000.00  
Purchase Returns and Allowances   14,000.00
Purchase Discounts   19,000.00
Transportation In 38,000.00  
Salaries Expense 327,000.00  
Advertising Expense 61,000.00  
Rent Expense 26,000.00  
TOTAL 3,333,000.00 3,333,000.00

Additional information:

a. Merchandise inventory at December 31, 2019 is P532,000.

b. Insurance coverage with premiums of P18,000 has expired during the year.
c. Depreciation for the year amounted to P25,000.
d. Office supplies remaining at year-end amounted to P15,000.
e. Salaries in the amount of P9,000 have accrued as of December 31, 2019.
f. Doubtful accounts are 5% of accounts receivable.

Required:

Prepare

1. Adjusting entries
2. Adjusted trial balance
 3. Income statement
4. Statement of changes in equity
5. Balance sheet
6. Closing entries

Problem 2

The ledger accounts of Erlinda Company for the year ended December 31, 2019 are as follows:

Accumulated Depreciation - Office Building 100,000.00

Accumulated Depreciation - Office Equipment 150,000.00
Accounts Receivable 136,000.00
Accounts Payable 74,000.00
Cash 72,000.00
Transportation In 72,000.00
Insurance Expense 25,000.00
Interest Expense 208,000.00
Erlinda, Capital 1,510,000.00
Erlinda, Withdrawals 200,000.00
Land 400,000.00
Merchandise Inventory 598,000.00
Mortgage Payable 1,100,000.00
Notes Payable due in 2 years 200,000.00
Office Building 1,600,000.00
Office Equipment 570,000.00
Office Supplies 42,000.00
Prepaid Advertising 75,000.00
Purchase Discounts 172,000.00
Purchase Returns and Allowances 133,000.00
Purchases 2,643,000.00
Salaries Expense 862,000.00
Sales Discounts 161,000.00
Sales Returns and Allowances 187,000.00
Sales 4,600,000.00
Travel Expense 188,000.00

Additional information:

a. Office supplies consumed during the year amounted to P17,000.

b. Advertising in the amount of P25,000 has expired during the tear.
c. Salaries of P21,000 have accrued as of December 31, 2019.
 d. Depreciation on the office building and on the office equipment amounted to P15,000 and
P20,000, respectively.
e. The December 31 inventory is P723,000.
f. Doubtful accounts are 2% of net sales.

Required:

Prepare

1. Adjusting entries
2. Worksheet (can be done in yellow pad, bond paper or excel if you don’t have a columnar
worksheet)
3. Financial statements
4. Closing entries