CHAPTER 11

EXERCISES
1. a) Bad Debts Expense 11,250
Allowance for Bad Debts 11,250
Financial position presentation:
Accounts Receivable 125,000
Less: Allowance for Bad Debts 17,250
Net Realization 107,750
Computation: 1% x 1,125,000
Allowance for Bad Debts, beginning 6,000
Add: Provision for bad debts 11,250
Total allowance for bad debts 17,250
b) Bad Debts Expense 5,417.50
Allowance for Bad Debts 5,417.50
Financial position presentation:
Accounts Receivable 125,000.00
Less: Allowance for Bad Debts 11,417.50
Net Realization P113,582.50
Computation: 1/2% x (1,125,000 - 16,000 -25,500)
Allowance for Bad Debts, beginning 6,000.00
Add: provision for bad debts 5,417.50
Total allowance for bad debts P11,417.50
c) Bad Debts Expense 2,500
Allowance for Bad Debts 2,500
Financial position presentation:
Accounts Receivable 125,000
Less: Allowance for Bad Debts 8,500
Net Realization 116,500
Computation: 2% x 125,000 = 2,500
Allowance for Bad Debts, beginning 6,000
Add: provision for bad debts 2,500
Total allowance for bad debts 8,500
d) Bad Debts Expense 250
Allowance for Bad Debts 250
Financial position presentation:
Accounts Receivable 125,000
Less: Allowance for Bad Debts 6,250
Net Realization 118,750
Computation: [5% x 125,000] required allowance 6,250
Allowance for Bad Debts, beginning 6,000
Provision for Bad Debts 250
2.
Estimated Percentage Provision for
Amounts Age of accounts
Uncollectible Bad Debts
P 60,000 Within the discount period 0
150,000 1-30 days past due 2 3,000
70,000 31-60 days past due 5 3,500
50,000 61-90 days past due 30 15,000
20,000 Over 90 days 50 10,000

Bad Debts Expense 31,500

Allowance for Bad Debts 31,500
Financial position presentation:
Accounts Receivable 350,000
Less: Allowance for Bad Debts 51,500
Net Realization 298,500

3.
Bad Debts Expense 26,500
Allowance for Bad Debts 26,500
Financial position presentation:
Accounts Receivable 350,000
Less: Allowance for Bad Debts 36,500
Net Realization 313,500

4. A. Popular Grocery
1. Building (8,800,000 – 1,250,000)/20 = 377,500 (yearly depreciation)
Depreciation Expense 377,500
Accumulated Depreciation – Building 377,500
99
 2. Furniture & Fixtures: (150,000 – 15,000)/10= 13,500
Depreciation Expense 13,500
Accumulated Depreciation – Furniture & Fixture 13,500
3. Office Equipment [(345,000-75,000)/8 x10/12=28,125
Depreciation Expense 28,125
Accumulated Depreciation 28,125
B. Financial position Presentation:
Building 8,800,000
Less: Accumulated Depreciation (377,500 x 4) 1,510,000
Book Value 7,290,000
Furniture & Fixtures 150,000
Less: Accumulated Depreciation (13,500x 1.5 yrs) 20,250
Book Value 129,750
Office Equipment 345,000
Less: Accumulated Depreciation 28,125
Book Value 316,875
Income Statement Presentation:
Operating Expenses:
Depreciation – Building 377,500
Depreciation – Furniture & Fixtures 13,500
Depreciation – Office Equipment 28,125

5. Date Particulars Debit Credit

Adjusting Entries:
a) Accrued Interest Income 59.11
Interest Income 59.11
(8,000 x .14 x 19/360)
b) Interest Expense 1,875
Prepaid Interest 1,875
(250,000 x .18x 60/360 = 7,500x 15/60)
c) Lease Income 646,666.67
Unearned Rent 646,666.67
(600,000 x 14/15) + (520,000 x 1/6)
d) Insurance Expense 4,000
Prepaid Insurance 4,000
(6,000 x 12/18)
e) Merchandise Inventory 145,000
Income & Expense Summary 145,000

6. a) 12/31/2011
Rent Expense 12,000
Accrued Rent Expense 12,000
b) Rent Expense Accrued Rent Expense
2011 198,000 12/31 12,000
12/31 12,000

In the 2011 Income Statement, Rent Expense will be presented as 210,000, while in the 2011
Statement of Financial Position there will be an additional Accrued Rent Expense or Rent Payable
in the liability section in the amount of P12,000
c) Jan. 1, 2012
Accrued Rent Expense 12,000
Rent Expense 12,000
d) Jan. 5, 2012
Rent Expense 12,000
Cash 12,000
e) Rent Expense Accrued Rent Expense
2012 2012 2012 2012
1/5 12,000 1/1 RE 12,000 1/1 RE 12,000 beg 12,000
f) Based on the T Account shown above, although rent was paid, this will not be presented in the 2012
Income Statement and no accrued rent will be presented in the 2012 Statement of Financial Position
because it has already been paid.

7. b. Adjusting Entries:
Bad Debts 3
Allowance for Bad Debts 3
(10% x 110 = 11 – 8 = 3)
Depreciation Expense –Furniture & Fixtures 10
Accum. Depn. – Furniture & Fixtures 10

100
 (60-10)/5=10)
Interest Receivable 6
Interest Income 6
(80 x 15% x 6/12)
Interest Expense 6
Interest Payable (80 x 18% x 5/12) 6
Rent Expense 10
Prepaid Rent 10
Salaries & Wages Expense 6
Salaries Payable 6
Commission Income 1
Unearned Commission Income 1
Output Tax 192
Input Tax 104
VAT Payable 88
Merchandise Inventory 85
Income & Expense Summary 85
c)
Villar Trading
Income Statement
For the year ended Dec. 31, 2011
Net Sales (note 1) P1,459
Cost of Sales (note 2) 951
Gross Income 508
Other Operating Income (note 3) 10
Selling Expenses (note 4) (139)
General Expenses (note 5) ( 120)
Interest Expense (6)
Net Income P 253

Note 1 Sales P1,500

Sales Return & allowances ( 25)
Sales Discount ( 16)
Net Sales P1,459
Note 2 Merchandise Inventory, Jan. 1 P 198
Purchases 850
Freight In 15
Purchase Returns & Allowances ( 19)
Purchase Discount ( 8)
Merchandise Inventory, Dec. 31 ( 85)
Cost of Sales P 951
Note 3 Commission Income P 4
Interest Income 6
Other Operating Income P10
Note 4 Selling Expenses
Freight Out P 19
Salaries & Wages (78 x 2/3) 52
Utilities (64 x ¾) 48
Depreciation 10
Rent 10
Total P139
Note 5 General Expenses
Salaries & Wages (78 x 1/3) P 26
Utilities (64 x ¼) 16
Taxes 75
Bad Debts 3
Total P 120
d) Villar Trading
Statement of Owner’s Equity
For the Year Ended December 31, 2011
Villar Capital, Beginning P 100
Add: Income 253
Less: Drawings (16)
Villar Capital, End P 337

e) Villar Trading
Statement of Financial Position
December 31, 2011
Assets Liabilities & Owner’s Equity
Current Assets Current Liabilities
Cash on Hand P 25 Accounts Payable P 16

101
 Cash In Bank 175 Salaries Payable 6
Accounts Receivable P 110 Unearned Commission Income 1
Allowance for Bad Debts ( 11) 99 Interest Payable 6
Merchandise Inventory 85 VAT Payable 88 117
Supplies Inventory 4 Total
Prepaid Rent 20 Non-Current Liabilities
Notes Receivable 80 Loan Payable 80
Interest Receivable 6 Total Liabilities 197
Total 494 Villar, Capital 337
Non- Current Assets
Furniture & Fixtures P 60
Accumulated Depr’n ( 20) 40
Total Assets P 534 Total Liabilities & Owner’s Equity P 534

f)
Closing Entries:
1) Sales 1,500
Interest Income 6
Commission Income 4
Purchase Returns & Allowances 19
Purchase Discount 8
Income & Expense Summary 1,537
2) Income & Expense Summary 1369
Merchandise Inventory, Jan. 1 198
Purchases 850
Freight In 15
Freight Out 19
Salaries & Wages 78
Utilities Expense 64
Bad Debts 3
Depreciation 10
Rent 10
Taxes 75
Sales Returns & Allowances 25
Sales Discount 16
Interest Expense 6
3) Income & Expense Summary 1,183
Villar, Capital 1,183
Income & Expense Summary
CE 1,369 AE 85
CE 1,537
253

4) Villar, Capital 16
Villar, Drawings 16

g)
Reversing Entries:
Salaries Payable 6
Salaries and Expense 6
Interest Income 6
Interest Receivable 6
Interest Payable 6
Interest Expense 6
Unearned Commission Income 1
Commission Income 1

h) Profitability
1. Gross Profit Ratio 508/1,459 = 35%
2. Operating Ratio 259/1,459 = 18%
3. Return on Sales = 253/1,459 = 17%
PROFITABLE

Liquidity
1. Working Capital 494 – 117 = 377
2. Current Ratio 494/117 = 4.22 :1
3. Acid Test Ratio = 299/117 = 2.56:1
VERY LIQUID

Solvency
1. Debt Ratio 197/534 = 37%

102
 2. Equity Ratio 337/534 = 63%
3. Times Interest Earned 259/6 = 43.17 times
VERY SOLVENT

7. a)
a) Land 300,000
Cash 250,000
Carmelo, Capital 550,000
b) Resort 108,000
Cash 108,000
c) Cash 300,000
Mortgage Payable 300,000
d) Resort Improvements 285,400
Cash 285,400
e) Equipment 48,000
Cash 12,000
Notes Payable 36,000
f) Furnitures & Fixtures 120,000
Cash 120,000
g) Linen 7,894
Cash 7,894
h) Supplies 4,200
Accounts Payable 4,200
i) Vending Purchases 540
Cash 540
j) Cash 84,303
Credit Card Receivable 4,437
Room Sales Revenue 88,740
k) Cash 8,800
Vending Sales Revenue 8,800
l) Wages 31,200
W/Tax Payable 1,560
SS Premium Payable 936
Pag-ibig Premium Payable 624
PH Premium Payable 312
Cash 27,768
m) Accounts Payable 3,200
Cash 3,200
n) Insurance Expense 4,200
Cash 4,200
o) Mortgage Payable 15,000
Interest Expense 2,000
Cash 17,000

b)
Cash Land
a) 250,000 b) 108,000 a) 300,000
c) 300,000 d) 285,400
j) 84,303 e) 12,000
k) 8,800 f) 120,000
g) 7,894
i) 540
l) 27,768
m) 3,200
n) 4,200
o) 17,000

Linen Purchases Land

g) 7,894 a) 300,000

Vending Purchases Resort

i) 5,400 b) 108,000

Credit Card Receivables Resort Improvements

j) 4,437 d) 285,400
103
 Supplies Equipments
h) 4,200 e) 48,000

Accounts Payable Furniture & Fixtures

m) 3,200 h) 4,200 f) 120,000

Notes Payable Prepaid Insurance

e) 36,000 n) 4,200

Mortgage Payable Wages

o) 15,000 c) 300,000 l) 31,200

Carmelo Capital SS Premium Payable

a) 550,000 l) 935

Vending Sales Revenue W/Tax Payable

k) 8,800 l) 1,560

Room Sales Revenue Pag-ibig Premium Payable

j) 88,740 l) 624

PhilHealth Premium Payable

l) 312

Interest Expense
o) 2,000

104
 c) Accounts Trial Balance Adjustments Income Statement Financial Position
Debit Credit Debit Credit Debit Credit Debit Credit
Cash 57,101 57,101
Linen Purchases 7,894 7,894
Vending Purchases 540 540
Credit Card Receivable 4,437 4,437
Supplies 4,200 8) 530 3,670
Land 300,000 300,000
Building 393,400 393,400
Equipment 48,000 48,000
Furnishings 120,000 120,000
Prepaid Insurance 4,200 3) 350 3,850
Notes Payable 36,000 36,000
Mortgage Payable 285,000 285,000
Accounts Payable 1,000 1,000
Withholding Tax 1,560 1,560
Payable
SS & EC Payable 936 936
Philhealth Payable 624 624
Pag-ibig Payable 312 312
Carmelo, Capital 550,000 550,000
Vending Sales 8,800 8,800
Room Sales 88,740 88,740
Wages 31,200 2) 4,160 35,360
Interest Expense 2,000 _______ 4) 360 2,360
972,972 972,972
Linen Inventory 1) 1,200 1) 1,200
Vending Inventory 1) 7,220 1) 7,220
Wages Payable 2) 4,160 4,160
Insurance Expense 3) 350 350
Interest Payable 4) 360 360
Depreciation 5) 375 375
Equipment
Accumulated 5) 375 375
Depreciation
Equipment
Depreciation 6) 1,177 1,177
Furniture
Accumulated 6) 1,177 1,177
Depreciation
Furniture
Depreciation 7) 1,464 1,464
Building
Accumulated 7) 1,464 1,464
Depreciation
Building
Supplies Expense 8) 530 530
Totals 8,4 8,41 50,050 105,960
19 9
Net Income 55,910 55,910
105,960 105,960 938,878 938,878
.

105
 8. Credo's Auto Supply
Worksheet
For the year ended Dec. 31, 2011
Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet
Account Title Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit

Cash On Hand 48 48 48
Cash In Bank 375 375 375
Accounts Receivable 64 64 64
Supplies 3 2) 2 1 1
Merch. Invty. 165 165 165 1) 237 1) 237
Prepaid Interest 6 5) 1 5 5
Store Equipment 144 144 144
Furniture & Fixtures 50 50 50
Accounts Payable 8 8 8
Loans Payable 100 100 100
Credo, Capital 470 470 470
Credo, Personal 26 26 26
Output Tax 107 8) 107
Sales 897 897 897
Sales Discount 16 16 16
Purchases 310 310 310
Input Tax 68 8) 68 4
Purchase Discounts 4 4
Freight In 1 1 1
Freight Out 13 13 13
Salaries-Office 17 17 17
Salaries-Sales 82 82 82
Utilities Expense 90 7) 4 94 94
Rent Expense 108 _____ 6) 36 72 72
1,586 1,586
Supplies Expense 2) 2 2 2
Dep.Exp.-Store Equip. 3) 10 10 10
Acc.Dep-Store Equip. 3) 10 10 10
DepnExp.-Office Furn. 4) 10 10 10
Acc.Depn.-Office Furn. 4) 10 10 10
Interest Expense 5) 1 1 1
Prepaid Rent 6) 36 36 36
Salaries Payable
Utilities Payable 7) 4 4 4
Taxes Payable 8) 39 39
170 170 1,610 1,610 793 1,138
345 345
1,138 1,138 986 986
Credo's Auto Supply
Post Closing Trial Balance
December 31, 2011
Debit Credit
Cash On Hand 48
Cash In Bank 375
Accounts Receivable 64
Supplies Inventory 1
Merchandise Inventory 237
Prepaid Interest 5
Prepaid Rent 36
Store Equipment 144
Accumulated Depreciation - Store Equipment 10
Furniture & Fixtures 50
Accumulated Depreciation - Furniture & Fixtures 10
Accounts Payable 8
Loans Payable 100
Taxes Payable 39
Utilities Payable 4
Credo, Capital 789
960 960
Credo's Auto Supply
Income Statement
For the year ended December 31, 2011
Net Sales (note 1) 881.00
Cost of sales (note 2) 235.00
Gross Profit 646.00
Selling Expenses (230.50)
General Expenses (69.50)
Operating Income 346.00
Interest Expense 1.00
Net Income P345.00

Note 1: Gross Sales 897

Less Sales Discount 16
Net Sales 881
Note 2: Cost of Sales
Merchandise Inventory 165
Purchases 310
Freight In 1
Discount (4)
Total Goods Available 472

106
 Less Merchandise Inventory 237

Note 3:Rent Expense – Store 54.0

Utilities Expense – Store 70.5
Sales Salaries 82.0
Supplies Expense – Store 1.0
Depreciation Expense - Store Equipment 10.0
Freight Out 13.0
230.5
Note 4:Rent Expense – Office 18.0
Utilities – Office 23.5
Supplies – Office 1.0
Salaries - Office 17.0
Depreciation – Office 10.0
P69.5
Credo's Auto Supply
Capital Statement
For the year ended Dec. 31, 2009
Credo, Capital Jan. 1 P470
Net Income 345
Credo, Drawings (26)
Credo, Capital, Dec. 31 P789
a) Net Income/Net Sales (345/881)x100 = 39.16%
Net Income/Capital (345/629.5) x 100 = 54.81%
Operating Income/Net Sales (346/881)x100 = 39.27%
Net Sales/Ave. Total Assets (881/907.50)x100 = .97 times
Very Profitable

b) Current Ratio 766/151 = 5.073:1

Acid Test Ratio 487/151 = 3.225:1
Very Liquid

c) Debt Ratio (151/960) x 100 = 15.73%

Equity Ratio (789/960) x 100 = 82.19%
Very solvent

d) Receivable TO (881/64) = 13.77x

Average Age (360/13.77) = 26 days
Inventory TO (235/201) = 1.17
Average Age (360/1.17) = 308 days
Efficient in collection
Poor Inventory Management

PROBLEMS
1. Accounts & Explanation Debit Credit
Case 1 Bad Debts Expense 48,050
Allowance for Bad Debts 48,050
(1,250,000 x .8 = 1,000,000 - 39,000)5%
Case 2 Bad Debts Expense 7,500
Allowance for Bad Debts 7,500
(150,000 x 5%)
Case 3 Bad Debts Expense 5,950
Allowance for Bad Debts 5,950
(7,500 - 1,550)
Case 1 Financial Position Presentation:
Accounts Receivable P150,000
Less: Allowance for Bad Debts 49,600
Net Realizable Value 100,400
Income Statement Presentation:
Operating Expense - Bad Debts 48,050
Case 2 Financial Position Presentation:
Accounts Receivable P150,000
Less: Allowance for Bad Debts 9,050
Net Realizable Value P140,950
Income Statement Presentation:
Operating Expense - Bad Debts 7,500
Case 3 Financial Position Presentation:
Accounts Receivable P150,000
Less: Allowance for Bad Debts 7,500
Net Realizable Value P142,500
Income Statement Presentation:
Operating Expense - Bad Debts 5,950
2. a)
107
 Accounts & Explanation Debit Credit
Allowance for Bad Debts 20,000
Accounts Receivable 20,000

Bad Debts Expense 46,500

Allowance for Bad Debts 46,500

P750,000 Not yet due 1 7,500

200,000 1-30 days past due 2 4,000
220,000 31-60 days past due 5 11,000
60,000 61-90 days past due 30 18,000
10,000 Over 90 days 60 6,000
46,500

b) Financial Position Presentation:

Accounts Receivable (1,260,000 – 20,000) P 1,240,000
Less: Allowance for Bad Debts (45,000 + 46,500) 91,500
Net Realizable Value 1,148,500

2. a. Equipment (450,000-75,000) /6 = 62,500 x (3/12) = P15,625 for 3 mos.

Furniture & Fixtures (125,000/10) = 12,500/2 = P6,250 for 6 mos.
Car (350,000 - 150,000) /5 = 40,000 x (2/12) = P6,667 for 2 mos
Depreciation Expense - Equipment P 15,625
Depreciation Expense - Furniture & Fixtures 6,250
Depreciation Expense – Car 6,667
Accumulated Depreciation -Equipment P 15,625
Accumulated Depreciation - Fur. & Fix. 6,250
Accumulated Depreciation - Car 6,667
Income Statement
Depreciation Expense 28,542
Balance Sheet
Equipment 450,000
Less Accumulated Depreciation 15,625 434,375
Furniture & Fixtures 125,000
Less: Accumulated Depreciation 6,250 118,750
Car 350,000
Less Accumulated Depreciation 6,667 343,333

b) Depreciation Expense - Equipment 31,250

Depreciation Expense - Furniture & Fixtures 6,250
Depreciation Expense - Car 20,000
Accumulated Depreciation - Equipment 31,250
Accumulated Depreciation - Furn. & Fix. 6,250
Accumulated Depreciation - Car 20,000
Income Statement
Depreciation Expense 57,500
Balance Sheet
Equipment 450,000
Less Accumulated Depreciation 46,875 403,125
Furniture & Fixtures 125,000
Less: Accumulated Depreciation 12,500 112,500
Car 350,000
Less Accumulated Depreciation 26,667 323,333
838,958
4. a) Accrued Interest 182.50
Interest Income 182.50
b) Accrued Interest Interest Income
182.50 550.00
182.50
732.50

Interest income should be P732.50 in the income statement.

Increase in the current asset by P182.50 for Accrued Interest.

c) Interest Income 182.50

Accrued Interest 182.50

d) Cash 37,047.50
Notes Receivable 36,500.00
Interest Income 547.50
108
 Interest Income Accrued Interest
1/1 RE 182.50 1/20 547.50 1/1 beg. 182.50 1/1 RE 182.50
f) Interest income will be P365 in the 2010 Income Statement.
No accrued interest in the financial position statement.

5. A. 1) 2011
Aug. 1 Prepaid Insurance 9,000
Cash In Bank 9,000
Oct. 31 Advertising Expense 18,000
Cash In Bank 18,000
2) Dec. 31 Prepaid Advertising 12,000
Advertising Expense 12,000
Insurance Expense 1,875
Prepaid Insurance 1,875
3) Prepaid Insurance Advertising Expense
8/1 9,000 12/31 1,875 10/31 18,000 12/31 12,000
7,125 6,000
Prepaid Advertising Insurance Expense
12/31 12,000 12/31 1,875

Income Statement
Insurance Expense 1,875
Advertising Expense 6,000

Financial Position Statement

Prepaid Insurance 7,125
Prepaid Advertising 12,000
B. 1) Jan. 1 None for Prepaid Insurance
Advertising Expense 12,000
Prepaid Advertising 12,000
2) Dec. 31 Insurance Expense 4,500
Prepaid Insurance 4,500
Prepaid Insurance Insurance Expense
1/1 7,125 12/31 4,500 12/31 4,500
2,625

6. 1) Bad Debts 500

Allowance for Bad Debts 500
2) Supplies Expense 1,400
Supplies 1,400
3) Interest Expense 100
Prepaid Interest 100
4) Prepaid Rent 4,267
Rent Expense 4,267
5) Depreciation 1,000
Accumulated Depreciation 1,000
6) Salaries Expense 450
Salaries Payable 450
7) Utilities Expense 2,520
Utilities Payable 2,520

7. Gross Profit = P21,580

Operating Income (Loss) = (P9,403)
Net Income (Loss) = (P9,503)
The company is not profitable as it incurred a net loss of 9,503.

8.
Kenneth Toyland
8-Column Worksheet
For the year ended June 30, 2009
Trial Balance Adjustments Income Statement Balance Sheet
Account Title Debit Credit Debit Credit Debit Credit Debit Credit
Cash In Hand 75200 75200
Cash On Bank 487288 487288
Accounts Receivable 112000 112000
Allowance for DA 4000 a) 1600 5600
Notes Receivable 4800 4800
Merch. Invty., 7/1 89500 89500
Prep. Store Ins. 6300 c) 3150 3150
Store Furn. & Fixtures 16000 16000
Accum. Depn. 500 d) 2100 2600

109
Office Furn. & Fix. 15000 15000
Accum. Depn. 900 e) 3,000 3900
Accounts Payable 54000 54000
Notes Payable 180000 180000
Unearned Commission 2400 h) 800 1600
Withholding Tax Payable 490 490
SS & EC Payable 522 522
Philhealth Payable 100 100
Pag-ibig Payable 200 200
Alfonso, Capital 521900 521900
Alfonso, Personal 30000 30000
Sales 583200 583200
Sales Ret. & Allowances 5020 5020
Sales Discount 2880 2880
Purchases 242000 242000
Freight In 6000 6000
Purch. Ret. & Allow. 3000 3000
Purchase Discount 2000 2000
Advertising Expense 9000 f) 300 8700
Salary Expense 60000 e) 550 60550
Sales
Salary Expense 33400 33400
Office
Rent Expense 96800 96800
Utilities Expense 42400 42400
Taxes Expense 12000 j) 1437 13437
Interest Expense 600 g) 1800 2400
SS & EC Expense 6424 6424
Philhealth Expense 1200 1200
Pag-ibig Expense 2400 2400
Interest Income 3000 b) 20 3020
Totals 1354900 1354900
Adjustments:
Bad Debts a) 1600 1600
Interest Receivable b) 20 20
Insurance Expense c) 3150 3150
Depn. Store Furn. & Fix. d) 2100 2100
Depn.-Off.Furn. & Fix. e) 3000 3000
Accrued Salaries e) 550 550
Prepaid Advertising f) 300 300
Interest Payable g) 1800 1800
Commission Income h) 800 800
Merch. Invty. End i) 67125 67125
Income & Exp. Sum. i) 67125 67125
Taxes Payable j) 1437 1437
Totals 81882 80445 622961 659145 810883 774699
Net Income 36184 36184
TOTALS 659145 659145 810883 810883

Kenneth Toyland
Post Closing Trial Balance
June 30, 2009
Debit Credit
Cash On Hand 75,200
Cash In Bank 487,288
Accounts Receivable 112,000
Allowance for Bad Debts 5,600
Notes Receivable 4,800
Merchandise Inventory 67,125
Prepaid Insurance 3,150
Store Furniture & Fixtures 16,000
Accumulated Depreciation - Store Furniture & Fix. 2,600
Office Furniture & Fixtures 15,000
Accumulated Depreciation – Office Furniture & Fix. 3,900
Interest Receivable 20
Prepaid Advertising 300
Accounts Payable 54,000
Notes Payable 180,000
Salaries Payable 550
Interest Payable 1,800
Unearned Commission 1,600
W/Tax Payable 490
SS & EC Payable 522
PH Payable 100
Pag-ibig Payable 200
Alfonso, Capital ______ 528,084
780,883 780,883

Closing Entries:
Income & Expense Summary 622,961
Purchases 242,000
Merchandise Inventory, June 1 89,500
Rent Expense 96,800
Taxes 13,437
Salary Expense - Office 33,400
Salary Expense - Sales 60,550
Depreciation Expense - Store Furniture & Fixtures 3,000
Depreciation Expense - Office Furniture & Fixtures 2,100
Freight In 6,000
Advertising Expense 8,700
110
 Sales Returns & Allowances 5,020
Doubtful Accounts Expense 1,600
Sales Discount 2,880
Insurance Expense - Sales 3,150
Utilities Expense 42,400
Interest Expense 2,400
SS & EC 6,424
Pag-ibig 2,400
PhilHealth 1,200
Sales 583,200
Merchandise Inventory, June 30 67,125
Purchase Returns & Allowances 3,000
Purchase Discount 2,000
Interest Income 3,020
Commission Income 800
Income & Expense Summary 659,145
Alfonso, Capital 36,184
Income & Expense Summary 36,184
Alfonso, Capital 30,000
Alfonso, Personal 30,000
Reversing Entries:
Advertising Expense 300
Prepaid Advertising 300
Interest Payable 1,800
Interest Expense 1,800
Interest Income 20
Interest Receivable 20
Taxes Payable 1,437
Taxes Expense 1,437

CASE STUDY
1. a) Yes, the business is a losing venture with a net loss of P72,000.
b) There was no adjustment yet on merchandise inventory count at year end.
c) Sales returns and allowances is quite alarming at 33,750 which means that there are a lot of defective
items produced by the company.

2. Profitability
Gross Profit Ratio 317,200/641,250 = 49%
Operating Ratio 77,400/641,250 = 12%
Rate of Return on Sales = 78,000/641,250 = 12%
The business is profitable

Net Sales (note 1) 641,250

Cost of sales (note 2) 324,050
Gross Profit 317,200
Selling Expenses (134,400)
General Expenses (105,400)
Operating Income 77,400
Interest Income 600
Net Income P 78,000

Note 1: Sales 675,000

Less Sales Discount 33,750
Net Sales 641,250

Note 2: Cost of Sales

Merchandise Inventory 171,250
Purchases 300,500
Purchase Returns and Allowances (2,400)
Freight In 4,700
Total Goods Available 474,050
Less Merchandise Inventory 150,000
324,050

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