1.

Tom Cruz started his Best Fastfood on July 1, 2017 with an initial investment totaling
P500,000, composed of P300,000 in cash from his personal funds and P200,000 worth of
equipment. Best Fastfood also borrowed P500,000 from a bank.
During its first six months of operations, revenues totaled P2,100,000 of which P1,900,000 were
collected. Purchases for kitchen supplies amounted to P1,850,000 of which P230,000 remained
unpaid. His fastfood operations were made at 50% above cost.
COGS= 2100/1.5= 1400
Kitchen supplies= 1850-1400= 450
He purchased a new equipment on October 1, 2017 and this was depreciated for P8,000 based
on a five-year life with a salvage value of 20% of its cost. The company also used the same
basis of depreciation for the other equipment he initially invested.
Equipment= 8/.25= 32*5= 160/.8= 200
Accum. Dep= 200*.8= 160/5*.5= 16+8= 24
The balance of his bank loan at December 31, 2017 is P200,000. All operating expenses,
including the purchase of new equipment, were paid in cash. Best Fastfood's business
operations ending December 31, 2017 showed a net income of P120,000.
Required: Prepare an Income Statement for the six months ended December 31, 2017, a
Balance Sheet as at December 31, 2017, and a Schedule of Cash Receipts and Payments for
the period.
Best Fastfood
Statement of Comprehensive Income
For Six Months Ended December 31, 2009
Sales P2,100,000
Cost of sales:
Purchases P1,850,000
Less Inventory, end 450,000 1,400,000
Gross profit P 700,000
Depreciation expense (24,000)
Other operating expenses (556,000)
Net income P 120,000

Best Fastfood
Balance Sheet
December 31, 2008
 Assets Liabilities and Capital
Current Assets: Current Liabilities:
Cash P24,000 Accounts payable P230,000
Accounts receivable 200,000 Bank loan 200,000
Inventory 450,000 Total current liabilities P430,000
Total current Assets P674,000

Non-current Assets Tom Cruz, Capital

Equipment P400,000 Initial investment P500,000
Less accum. Dep 24,000 376,000 Add profit 120,000 620,000
Total assets P1,050,000 Total liabilities and capital P1,050,000

Computation of cash balance:

Cash receipts from:
Initial investment by owner P 300,000
Collections from sales 1,900,000
Bank loan 500,000 P2,700,000
Less cash payments for:
Purchases P1,620,000
Bank loan 300,000
Equipment 200,000
Cash operating expenses 556,000 2,676,000
Cash balance, end P 24,000

HORN CORPORATION
3. Horn Corporation maintains its financial records on the cash basis of accounting. Interested in
securing a long-term loan from its regular bank, the company requests you to convert its cash-
basis income statement data to the accrual basis. You are provided with the following data
covering 2015, 2016, and 2017.
2015 2016 2017
Cash receipts from sales:
 On 2015 sales P295,000 P160,000 P30,000
On 2016 sales -0- 355,000 90,000
On 2017 sales 408,000
Cash payments for expenses:
On 2015 expenses 185,000 67,000 25,000
On 2016 expenses 40,000 160,000 55,000
(a)
On 2017 expenses 45,000 218,000

(a) Prepayments of 2016 expenses

(b) Prepayments of 2017 expenses
Required: Prepare abbreviated income statements for years 2015 and 2016 using both cash
and accrual basis. (Kieso, et al, 11th Ed)
(Cash Basis)
Horn Corporation
Income Statement
For the Years Ended December 31, 2016 and 2015
2016 2015
Revenues P 515,000 P295,000
Expenses 272,000 225,000
Net Income P 243,000 P 70,000
2016 sales = P160,000 + 355,000 = 515,000
2015 sales = 295,000
2016 expenses = 67,000 + 160,000 + 45,000 = 272,000
2015 expenses = 185,000 + 40,000 = 225,000

(Accrual Basis)
Horn Corporation
Income Statement
For the Years Ended December 31, 2016 and 2015
 2016 2015
Revenues P445,000 P485,000
Expenses 255,000 277,000
Net Income P190,000 P208,000
2016 sales = 355,000 + 90,000 = 445,000
2015 sales = 295,000 + 160,000 + 30,000 = 485,000
2016 expenses = 40,000 + 160,000 + 55,000 = 255,000
2015 expenses = 185,000 + 67,000 + 25,000 = 277,000

BORN AND CORN

4. On January 1, 2018, Born and Corn formed a computer sales and service enterprise by
investing P900,000 cash. The new company has the following transactions during January.
a. Pays P60,000 in advance for three months’ rent of office, showroom, and repair space.
b. Purchases 40 personal computers at a cost of P15,000 each, 6 graphics computers at a cost
of P30,000 each, and 25 printers at a cost of P4,500 each, paying 75% of the total amount due
upon delivery.
c. Sales, repair, and office employees earn P126,000 in salaries during January, of which
P30,000 was still payable at the end of January.
d. Sells 30 personal computers at P25,500 each, 4 graphic computers at P45,000 each, and 15
printers for P7,500 each; P750,000 is received in cash in January and P307,500 is sold on a
deferred payment basis.
e. Other operating expenses of P84,000 are incurred and paid for during January; P20,000 of
incurred expenses are payable at February 28.
Required: Prepare cash basis and accrual basis income statements for the month of January.

Born and Corn

Income Statement
For the Year Ended December 31, 2009
Cash Basis Accrual Basis
Sales P750,000 P1,057,500
Cost of Sales (669,375) (637,500)
Salaries Expense (96,000) (126,000)
Rent Expense (60,000) (20,000)
Other Operating Expenses (84,000) (104,000)
Profit P (159,375) P 170,000

ATTY. D. MACAPANALO
5. Atty. D. Macapanalo maintains the accounting records of its law firm on a cash basis. During
2017, Atty. D. Macapanalo collected P1,250,000 from his clients and paid P722,400 in
expenses.
At December 31, 2016 and December 31, 2017, he had Fees Receivable, Unearned Fees
Revenue, Accrued Expenses, and Prepaid Expenses as follows:
Dec. 31, 2016 Dec. 31, 2017
Fees Receivable P 52,000 P 47,000
Unearned Fees Revenue 26,200 29,000
Accrued Expenses 18,000 21,500
Prepaid Expenses 6,400 5,000
Required: Prepare an income statement for the year ended December 31, 2017 using the
accrual basis.
Atty. D Macapanalo
Income Statement
For the Year Ended December 31, 2017
Professional Fees P 1,242,200
Expenses 727,300
Profit P 514,900

Professional Fees
2009 Collection P1,250,000
Fees Receivable, January 1 (52,000)
Fees Receivable, December 31 47,000
Unearned Fees, January 1 26,200
Unearned Fees, December 31 (29,000)
Professional Fees, Accrual Basis P 1,242,200
Expenses
2009 Payments P 722,400
Accrued expenses, January 1 (18,000)
Accrued expenses, December 31 21,500
Prepaid expenses, January 16,400
Prepaid expenses, December 31 (5,000)
Expenses, accrual basis P 727,300

JACK AND JILL COMPANY

6. The Jack and Jill Company is a partnership that has not maintained adequate accounting
records because it has been unable to employ a competent bookkeeper. The company sells
hardware items to the retail trade, and also sells wholesale to builders and contractors. The
company has asked its CPA to prepare the financial statements as of December 31, 2017.
Working papers provide the following post-closing trial balance at December 31, 2016.
Jack and Jill Company
Post-closing Trial Balance
December 31, 2016
Debit Credit
Cash 1,000,000
Accounts Receivable 800,000
Allowance for Bad Debts 60,000
Merchandise Inventory 3,500,000
Prepaid Insurance 15,000
Automobiles 780,000
Accumulated Depreciation-Automobiles 425,000
Furniture & Fixtures 220,000
Accumulated Depreciation-Furniture & Fixtures 65,000
Accounts Payable 1,380,000
Bank Loan Payable 800,000
Accrued Expenses 20,000
Jack, Capital 1,750,000
Jill, Capital 1,815,000
Total 6,315,000 6,315,000

The following information was collected at December 31, 2017:

a. An analysis of cash transactions derived from the company’s bank statements and
checkbook stubs, is as follows:
Deposits:
Cash receipts from customers
(P4,000,000 of this amount represents
collections on receivables, including
re-deposited protested checks totaling P60,000 6,500,000
Bank loan, 01/02/17 (12% due May 2, 2017,
P800,000 face value) 768,000
Bank loan, 05/01/17 (12% due January 2, 2018,
P900,000 face value) 828,000
Sale of old automobile 20,000
Total deposits 8,116,000

Disbursements:
Payments to merchandise creditors 4,500,000
Selling and general expenses 1,000,000
Bank loan, 01/02 17 800,000
Bank loan, 05/02/17 800,000
Payment for new automobile 440,000
Protested checks 90,000
Jack, withdrawals 500,000
Jill, withdrawals 250,000
Total disbursements 8,380,000

b. The protested checks include customers’ checks totaling P60,000 that were redeposited, and
a P30,000 check from an employee that is still on hand.
c. Accounts receivable from customers for merchandise sales amounted to P1,800,000 and
include accounts totaling P80,000 that have been placed with an attorney for collection.
Correspondence with the client’s attorney reveals that one of the accounts for P17,500 is
uncollectible.
d. On April 1, 2017, a new automobile was purchased. The list price of the automobile was
P470,000 and P30,000 (440,000) was allowed for the trade-in of an old automobile, even
though the dealer did not want it due to its poor condition. The client sold the automobile, which
cost P280,000 and was fully depreciated at December 31, 2016 to an auto wrecker for P20,000.
The automobile was in use up to the date of its sale.
e. Depreciation is recorded by using the straight-line method and is computed on acquisition to
the nearest full month. The estimated life for furniture and fixtures is ten years, and for
automobiles is three years. Salvage value is to be ignored in computing depreciation. No asset
other than the car in item (d) was fully depreciated prior to December 31, 2017.
f. Other data as of December 31, 2017 includes the following:
Merchandise inventory per count P3,750,000
Prepaid insurance 8,000
Accrued expenses 16,600
g. Accounts payable to merchandise vendors total P1,875,000. There is on hand a P75,000
credit for returned merchandise. The company will apply the credit to January 2018
merchandise purchases. The merchandise return has not yet been recorded in the books.
h. Profits and losses are divided equally between the partners.

Required: Prepare an income statement for the year ended December 31, 2017 and a balance
sheet as of the end of 2017, using the accrual basis.

Jack and Jill Company

Statement of Comprehensive Income
For the Year Ended December 31, 2009
Sales P 7,440,000
Cost of sales 4,670,000
Gross Profit P 2,770,000
Other operating income
Gain on sale of automobile 20,000
Total income P 2,790,000
Operating expenses
Depreciation 298,667
Others 1,003,600
Total expenses 1,302,667
Profit before interest 1,487,733
Interest expense 104,000
Profit P 1,383,733

Jack and Jill Company

Statement of Changes in Equity
For the Year Ended December 31, 2009

Jack Jill
Equity, January 1 P1,750,000 P1,815,000
Withdrawals (500,000) (250,000)
Share in profit 691,867 691,866
Equity, December 31 P1,941,867 P2,256,866

Jack and Jill Company

Statement of Financial Position
December 31, 2009
Assets
Current Assets
Cash P 736,000
Accounts receivable 1,782,500
Allowance for bad debts (60,000 – 17,500) (42,500)
Receivable from employees 30,000
Deposit on merchandise purchases 75,000
Merchandise inventory 3,750,000
Prepaid insurance 8,000
Total current assets P 6,339,000

Non-current Assets
Property, plant and equipment
Furniture and fixtures P 220,000
Accumulated depreciation – furniture and fixtures (87,000)
Automobiles 940,000
Accumulated depreciation - automobiles (421,667)
Total property, plant and equipment P 651,333
Total Assets P 6,990,333

Liabilities
Current Liabilities
Accounts Payable P 1,875,000
Accrued Expenses 16,600
Bank loan, including accrued interest 900,000
Total current liabilities P 2,791,600

Equity
Jack, capital P 1,941,867
Jill, capital 2,256,866
Total partners’ equity 4,198,733
Total liabilities and partners’ equity P 6,990,333

Sales
Collections in 2008 (6,500,000 -60,000) P6,440,000
Accounts receivable, end (1,800,000 – 17,500) 1,782,500
Write off 17,500
Accounts receivable, January 1, 2009 (800,000)
Sales P7,440,000
Purchases
Payments to merchandise creditors P4,500,000
Accounts payable, end 1,875,000
Returned merchandise (to be applied to future purchases) ( 75,000)
Accounts payable, beginning (1,380,000)
Net purchases P4,920,000
Cost of sales
Inventory, beginning P3,500,000
Net purchases 4,920,000
Inventory, end ( 3,750,000)
Cost of sales P4,670,000
Depreciation expense
On old furniture and fixtures (P220,000/10) P 22,000
On old automobiles (P780,000 – 280,000)/ 3 166,667
On new automobile 440,000 / 3 x 9/12 110,000
Depreciation expense P 298,667
Expenses other than depreciation
Payments for selling and general expenses P1,000,000
Prepaid insurance, beginning 15,000
Prepaid insurance, end ( 8,000)
Accrued expenses, beginning ( 20,000)
Accrued expenses, end 16,600
Expenses other than depreciation P1,003,600
Interest Expense
On bank loan obtained on 01/02/06 and paid 05/02/06 P 32,000
Accrued on bank loan obtained on 05/01/06 72,000
Total interest expense P 104,000