MERCHANDISING ACTIVITY – 11.23.

2021 ACT110-FAR

Use worksheet and prepare the adjusting entries to correct the figures as per below accounts. Prepare
also the Income Statement, Statement of Changes in Stockholders’ Equity and Balance Sheet.

Below is the trial balance of ABC Company, prior to the closing of its accounts for the fiscal year-ended
June 30, 2021:

DEBIT CREDIT

Cash 233,000
Accounts receivable 936,000
Allowance for doubtful accounts 31,900
Notes receivable 155,000
Merchandise inventory, June 30, 2020 568,900
Furniture and Equipment 618,000
Acc. Depreciation-Furniture & Eqp’t 187,500
Goodwill 300,000
Accounts Payable 536,000
Notes Payable 100,000
Capital Stock 1,000,000
Retained earnings 560,500
Sales 3,728,200
Sales Returns and allowances 47,600
Purchases 2,159,300
Purchase Returns and allowances 36,500
Advertising 96,100
Sales salaries 288,500
Commission expense 152,000
Miscellaneous selling expenses 29,900
Rent expense 130,000
Office salaries 197,200
Light and water 15,000
Insurance expense 10,800
Taxes and licenses 47,800
Miscellaneous general expenses 163,400
Interest expense 41,200
Interest income 9,100
6,189,700 6,189,700

Additional information:

Your examination of the company’s accounts had indicated the need for adjustments based on the
following information:

1. The Cash account include a customers’ check for P25,000 deposited on June 15, 2021, but
returned by the bank on June 29,2021 for lack of countersignature. No entry was made by the
company for the return of the check or for its redeposit on July 5, 2021.
 2. The Allowance for Doubtful Accounts should be adjusted to 5% of the customers’ outstanding
balances on June 30, 2021.
3. A physical inventory taken of the merchandise stock at the end of the fiscal year amounted to
P601,200.
4. A purchase of merchandise FOB shipping point, for which goods costing P50,000 were still in
transit on June 30, 2021 was neither taken as a liability nor included in the inventory on that
date.
5. Goods received on consignment, still unsold, were included in the inventory at the agreed
selling price of P28,000.
6. The merchandise inventory at June 30, 2020 was correctly stated.
7. On April 1, 2021, equipment which was acquired on July 1, 2018 with a book value of P32,000 on
June 30, 2020 was sold for P35,000 in cash. The sales proceeds were credited to the Furniture
and Equipment account.
8. Depreciation for the fiscal year 2020 and 2021 has not been recorded. Depreciation rate being
used is 10% annually.
9. An insurance policy was taken on the inventory and equipment on January 1, 2021 with the
annual premium of P10,800 paid on that date.
10. Rent expense account consisted of rent paid for stock and office space for thirteen (13) months
ending July 31, 2021.
11. The 120-day Note Payable of P100,000 bearing interest of 12% was discounted at the bank on
June 1, 2021.
12. The Goodwill account was set-up by a credit to Retained Earnings under a resolution of the
Board of Directors.

NOTE: Consider also the readings in your CFAS, when doing the adjusting entries.