INTERMEDATE ACCOUNTING 3

ACTIVITY 6

PROBLEM 16-2 - SUSAN COMPANY

a.
2018 2019
Net income 3,000,000 4,000,000
December 31, 2018 inventory understated 20,000 (20,000)
December 31, 2019 inventory overstated (18,000)
Depreciation for 2018 understated (4,000) -
Prepaid insurance unrecorded on December 31, 2018 10,000 (5,000)
Gain on sale of machinery 32,000
Corrected net income 3,026,000 3,989,000

b. Adjusting entries - December 31, 2019

1. Inventory - January 1, 2019 20,000

Retained earnings 20,000

2. Profit and loss 18,000

Inventory - December 31, 2019 18,000

3. Retained earnings 4,000

Accumulated depreciation 4,000

4. Prepaid insurance 5,000

Insurance 5,000
Retained earnings 10,000

5. Cash 32,000
Accumulated depreciation 200,000
Machinery 200,000
Gain on sale of machinery 32,000
PROBLEM 16-4 EMERALD COMPANY
Net income 1,550,000
Prepaid insurance – December 31, 2019 10,000
Inventory on January 1, 2019 understated (80,000)
Inventory on December 31, 2019 understated 120,000
Accrued taxes – December 31, 2019 (60,000)
Advances from customer – December 31, 2019 (100,000)
Corrected net income 1,440,000

Adjusting entries – December 31, 2019

1. Prepaid insurance 10,000
Insurance 10,000

2. Inventory – January 1, 2019 80,000

Retained earnings 80,000

3. Inventory – December 31, 2019 120,000

Profit and loss 120,000

4. Taxes 60,000
Accrued taxes payable 60,000

5. Sales 100,000
Advances from customer 100,000

PROBLEM 16-9 GLORY COMPANY

1. A
2. B
3. C

PROBLEM 16-15 TAAL COMPANY

1. D
2. A
3. A
4. D
PROBLEM 17-1 MOUNTAIN COMPANY

Accounts receivable – January 1 440,000

Add: Sales 4,500,000
Total 4,940,000
Less: Accounts receivable – December 31 540,000
Writeoff 10,000 550,000
Collections from customers 4,390,000

Accounts payable – January 1 160,000

Purchases 2,850,000
Total 3,010,000
Less: Accounts payable – December 31 280,000
Payment to merchandise creditors 2,730,000
Salaries 600,000
Add: Accrued salaries – January 1 80,000

Total 680,000
Less: Accrued salaries – December 31 50,000
Payment for salaries 630,000
Insurance 20,000
Add: Prepaid insurance – December 31 15,000
Total 35,000
Less: Prepaid insurance – January 1 10,000
Payment for insurance 25,000

Direct method

Cash received from customers 4,390,000

Cash payment to creditors (2,730,000)
Salaries paid (630,000)
Insurance paid (25,000)
Rent paid (250,000)
Other expenses paid (100,000)
Net cash provided by operating activities 655,000

Indirect method

Net income 450,000

Increase in net accounts receivable (80,000)
Decrease in inventory 150,000
Increase in prepaid insurance (5,000)
Increase in accounts payable 120,000
Decrease in accrued salaries payable (30,000)
Depreciation 50,000
Net cash provided by operating activities 655,000
PROBLEM 17-5 FEARSOME COMPANY
Entries

1. Profit and loss 3,050,000

Retained earnings 3,050,000

2. Retained earnings 2,500,000

Cash 2,500,000

3. Cash 70,000
Accumulated depreciation 150,000
Equipment 200,000
Gain on sale of equipment 20,000
4. Cash (10,000 x 150) 1,500,000
Share capital 1,000,000
Share premium 500,000

5. Cash 900,000

Treasury share 700,000

Share premium 200,000

6. Bonds payable 500,000

Share capital (2,500 x 100) 250,000
Share premium 250,000

7. Equipment 1,200,000
Cash 1,200,000

8. Land 500,000
Note payable – long term 500,000

9. Cash 100,000
Accounts receivable 100,000

10. Inventory 150,000

Cost of sales 150,000

11. Investment in Hall Company 200,000

200,000
Investment income
12. Purchases 50,000
50,000
Accounts payable

Operating Investing Financing

1.Net income 3,050,000

2.Cash dividend (2,500,000)
3.Sale of equipment 70,000
Gain on sale of equipment (20,000)
Depreciation 400,000
4.Issuance of share capital 1,500,000
5.Sale of treasury shares 900,000
6.Conversion of bonds
payable into Ordinary share-
no cash effect
7.Purchase of equipment (1,200,000)
8.Purchase of land by issuing a
note – no cash effect
9.Decrease in accounts receivable 100,000
10. Increase in inventory (150,000)
11. Investment income (200,000)
12. Increase in accounts payable 50,000
Net cash provided (used) 3,230,000 (1,130,000) ( 100,000)
 Fearsome Company
Statement of Cash Flows
December 31, 2019

Cash flow from operating activities:

Net income 3,050,000
Gain on sale of equipment ( 20,000)
Depreciation 400,000
Decrease in net accounts receivable 100,000
Increase in inventory ( 150,000)
Investment income ( 200,000)
Increase in accounts payable 50,000 3,230,000
Cash flow from investing activities:
Sale of equipment 70,000
Purchase of equipment (1,200,000) (1,130,000)
Cash flow from financing activities:
Issue of share capital 1,500,000
Sale of treasury shares 900,000
Payment of cash dividend (2,500,000) ( 100,000)
Increase in cash and cash equivalents 2,000,000
Add: Cash and cash equivalents – January 1 350,000
Cash and cash equivalents – December 31 2,350,000

PROBLEM 17-30 MEGA COMPANY

1. D
2. B
3. B