Solution manual fundamentals of accounting by cabrera chapter 09

Chapter 9
Measuring Business Income: The Adjusting Process
Exercises
Exercise 1
a. The error will overstate the debits by P4,500 or understate the credits by
P4,500.
b. The total debits will still be equal to the total credits. But accounts payable
will be overstated by P2,000 while accounts receivable will be overstated by
P2,000.
c.

The total debits will still be equal to the total credits but both totals will be
understated by P5,040.

d. The total debits will still be equal to the total credits. However, equipment will
be understated by P6,000 while supplies will be overstated by P6,000.
Exercise 2

Cash
Accounts receivable
Supplies
Prepaid insurance
Equipment
Accounts payable
Jun Gomez, Capital
Jun Gomez,
Withdrawal
Revenues
Salaries expense
Rent expense
Advertising expense

Utility expense

Unadjusted Trial
Balance
DR
CR
38,400
56,600
1,200
1,800
84,000
454,000
115,600

2,600
6,000
3,400
260
217,660

7,000
59,200

Corrections
(a)
(c)
(d)
(e)

DR

4,000
1,200
1,200
1,800

(f)
(i)

6,800
4,000

(b)

Corrected Trial Balance

CR
1,800

DR
40,600
57,800
24,000
3,600
84,000

38,600
115,600

(h) 14,000

11,000

(j)

26,000
6,000
3,400
2,600

2,340
(g) 24,000

237,400

Exercise 3
b – credit column
a – debit column
b – credit column
a – credit column

59,200

227,200

Note payable

1.
2.
3.
4.

CR

6.
7.
8.
9.

b – credit column
a – debit column
b – debit column
b – credit column

24,000
237,400


2

Chapter 9

5. b – debit column
Exercise 4

10. b – debit column

1.
2.
3.
4.

5.
6.

7.
8.
9.
10.
11.
12.

asset
asset
liability
revenue
expense
asset

f.
g.
h.
i.
j.

7
5
2
4
3

asset

asset
liability
revenue
expense
expense

Exercise 5
a.
b.
c.
d.
e.

8
1
9
10
6

Exercise 6
a.
b.
c.
d.

4
6
5
7

e. 1
f. 2
g. 3


Measuring Business Income: The Adjusting Process

3

Exercise 7
Pongky’s Sanitize Services Co.
Work Sheet
For the Year Ended December 31, 2008

Cash
Accounts receivable
Supplies
Prepaid insurance
Land
Equipment
Accumulated depreciation
– Equipment
Accounts payable
Wages payable
Del Cee, Capital
Del Cee, Drawing
Fees Earned
Wages expense
Rent expense
Insurance expense

Utilities expense
Depreciation expense
Supplies expense
Miscellaneous expense
Total

Trial Balance
Debit
Credit
60,000
250,000
40,000
60,000
100,000
140,000

Adjustments
Debit
Credit
(a) 40,000
(b) 20,000
(c) 40,000

10,000
130,000
0
410,000

(d) 20,000

300,000

(a) 40,000

30,000
130,000
20,000
410,000

(e) 20,000

40,000
80,000
40,000
0
20,000
0
0
20,000
850,000

Adjusted Trial Balance
Debit
Credit
60,000
290,000
20,000
20,000
100,000
140,000

40,000
(e) 20,000
(c) 40,000
(d) 20,000
(b) 20,000
850,000

140,000

140,000

340,000
100,000
40,000
40,000
20,000
20,000
20,000
20,000
930,000

930,000


4

Chapter 9

Exercise 8

A/N: Please change column headings to Adjusted Trial Balance, Income
Statement and Balance Sheet, respectively.
Sandy’s Sanitize Services Co.
Work Sheet
For the Year Ended December 31, 2008

Cash
Accounts receivable
Supplies
Prepaid insurance
Land
Equipment
Accumulated depreciation
– Equipment
Accounts payable
Wages payable
Sandy Park, Capital
Sandy Park, Drawing
Fees Earned
Wages expense
Rent expense
Insurance expense
Utilities expense
Depreciation expense
Supplies expense
Miscellaneous expense
Total
Net income (loss)

Adjusted Trial Balance

Debit
Credit
60,000
290,000
20,000
20,000
100,000
140,000

Income Statement
Debit
Credit

Balance Sheet
Debit
Credit
60,000
290,000
20,000
20,000
100,000
140,000

30,000
130,000
20,000
410,000

30,000
130,000

20,000
410,000

40,000

40,000
340,000

100,000
40,000
40,000
20,000
20,000
20,000
20,000
930,000

930,000

340,000
100,000
40,000
40,000
20,000
20,000
20,000
20,000
260,000
80,000
340,000

340,000
340,000

670,000

590,000
80,000
670,000


Measuring Business Income: The Adjusting Process

5

Exercise 9
PUB Service Co.
Statement of Owner’s Equity
For the year ended December 31, _____
Miguel Roces, Capital, January 1
Add Net Income
Less Drawings
Miguel Roces, Capital, December 31

P1,437,500
332,500
1,770,000
100,000
P1,670,000

Exercise 10
Errors
1. Balance Sheet should be as at August 31, 2008
2. Accounts payable should be listed in the current liabilities section.
3. Land should be under the Property, Plant and Equipment section.
4. Accumulated depreciation for Building and Equipment should be shown as
contra-asset accounts in the PPE section.
5. Accounts receivable should be listed among the current asset accounts.
6. Net loss should be deducted from P. Candelaria, capital account.
7. Wages payable should be listed among the current liabilities accounts.


6

Chapter 9

Sixteen Candles Company
Balance Sheet (as corrected)
August 31, 2008
Assets
Current Assets
Cash
Accounts receivable
Supplies
Prepaid insurance
Total current assets
Property, Plant and Equipment
Land
Building
Less: Accumulated depreciation

Equipment
Less: Accumulated depreciation
Total PPE
Total Assets

P 51,700
53,900
5,900
16,000
P127,500
P750,000
P555,000
230,000
282,500
160,000

325,000
122,500
1,197,500
P1,325,000

Liabilities and Owner’s Equity
Current Liabilities
Accounts payable
Wages payable
Total current liabilities
Owner’s Equity
P. Candelaria, Capital, January 1
Less: Net loss
P. Candelaria, Capital, December 31

Total Liabilities and Owner’s Equity

P
P

43,900
9,750
53,650

1,271,350
155,000
1,116,350
P1,170,000

There is a difference between the total assets and total liabilities and owner’s
equity of P155,000. One possible explanation is since the “net loss” account has
a credit balance of P155,000 and just erroneously included in the current
liabilities section, then this could in reality be “net income” which should be added
to the capital account.


Measuring Business Income: The Adjusting Process

7

Exercise 11
Green Badge Service
Preparation of Adjusted Trial Balance
October 31, 2007
Trial Balance

Debit
Credit
Cash

30,000

Accounts receivable

65,000

Supplies

10,400

Office furniture

Adjustments
Debit
Credit

30,000
(a) 9,000
(b) 2,400

110,600

Unearned revenue

9,000

Capital

8,000
293,000

Salary payable

Owner’s withdrawals

74,000

293,000

Accumulated depreciation

Adjusted Trial Balance
Debit
Credit

(c) 3,600

114,200

(d) 6,000

6,000

(e) 2,100

6,900

263,400

263,400

62,000

Service revenue

62,000
118,300

(a) 9,000

129,400

(e) 2,100
Salary expense

26,900

Rent expense

14,000

(d) 6,000

32,900
14,000

Depreciation expense

(c) 3,600

3,600

Supplies expense

(b) 2,400

2,400

501,300

501,300

23,100

23,100

519,900

519,900


8

Chapter 9

Multiple Choice Questions

1.
2.
3.
4.
5.

c
c
c
a
c

6.
7.
8.
9.
10.

d
b
c
c
b

11.
12.
13.
14.
15.

c
b
a
c
d

Test Material
Test Material 9-1
Cash
Dec.

2 120,000
9
8,000
21 90,000
28
6,000

Bal.

Dec.

Accounts Receivable
2
3
12
26
30

5,000

30,000
2,000
3,000
16,000

Dec. 18
Bal.
Adj.
Bal.

Dec. 28

6,000

87,000

Supplies
Dec.
Bal.

17,000
11,000
4,000
15,000

5

3,000
1,000

Adj.

Equipment
2,000

Dec.

3

Accumulated Depreciation – Equipment
Adj.

500

Furniture
Dec.

4

Accumulated Depreciation – Furniture
Adj.

600

30,000

36,000

Accounts Payable
Dec. 26

3,000

Dec.
Bal.

4
5

36,000
3,000
36,000


Measuring Business Income: The Adjusting Process

9

Test Material 9-2
Requirement (1)
Gabriel Liwayway, Speech Therapist
Trial Balance
October 31, 2008

Cash
Accounts Receivable
Prepaid Rent
Supplies
Furniture
Accumulated Depreciation

Accounts Payable
Salary Payable
Gabriel Liwayway, Capital
Gabriel Liwayway, Drawing
Consulting Service Revenue
Salary Expense
Rent Expense
Utilities Expense
Depreciation Expense
Supplies Expense

Trial Balance
Debit
Credit
P 32,600
16,000
8,000
1,200
30,000
P 6,000
5,600

(a) 4,000
(b) 2,000*
(c)
800
(d) 500**
(e) 800***

72,000

7,200
14,800
2,800

(a) 4,000
(e) 800***
(b) 2,000*

600
P 98,400

P 98,400

_____
* P8,000  4 = P2,000
** P30,000  5 = P6,000  12 = P500
*** P4,000  5 = P800

Requirement (2)

Adjustments
Debit
Credit

(d) 500**
(c)
800
8,100

8,100

Adjusted Trial Balance
Debit
Credit
32,600
20,000
6,000
400
30,000
6,500
5,600
800
72,000
7,200
18,800
3,600
2,000
600
500
800
103,700
103,700


10

Chapter 9

Gabriel Liwayway, Speech Therapist
Income Statement

For the Month Ended October 31, 2007
Revenues:
Consulting service revenue
Expenses:
Salary expense
Rent expense
Supplies expense
Utilities expense
Depreciation expense
Total expenses
Net income

P18,800
P3,600
2,000
800
600
500
7,500
P11,300

Gabriel Liwayway, Speech Therapist
Statement of Owner’s Equity
For the Month Ended October 31, 2007
Gabriel Liwayway, capital, September 30, 2007
Add: Net income
Less: Withdrawals
Gabriel Liwayway, capital, October 31, 2007

P72,000

11,300
83,300
7,200
P76,100

Gabriel Liwayway, Speech Therapist
Balance Sheet
October 31, 2007
ASSETS

LIABILITIES

Cash
Accounts receivable
Prepaid rent
Supplies
Furniture
P30,000
Less: Accum. depr. 6,500

P32,600
20,000
6,000
400

Total assets

P82,500

Test Material 9-3

23,500

Accounts payable
Salary payable
Total liabilities
OWNER’S EQUITY
Gabriel Liwayway, capital
Total liabilities and
owner’s equity

P 5,600
800
P 6,400
76,100
P82,500


Measuring Business Income: The Adjusting Process

11

Requirement (1)
Lorenzo Anicete, Attorney
Preparation of Adjusted Trial Balance
July 31, 2008
Account Title
Cash
Accounts Receivable
Prepaid Rent

Supplies
Furniture
Accumulated Depreciation
Accounts Payable
Salary Payable
Lorenzo Anicete, Capital
Lorenzo Anicete, Drawing
Legal Service Revenue
Salary Expense
Rent Expense
Utilities Expense
Depreciation Expense
Supplies Expense

Trial Balance
Debit
Credit
P 29,200
23,200
7,200
1,600
33,600
P 7,000
6,700

(a) 1,800
(b) 1,800*
(c)
800
(d) 700**

(e) 400***

77,300
8,000
17,500
4,800

(a) 1,800
(e) 400***
(b) 1,800*

1,100
P108,700

P108,700

_____
* P7,200  4 = P1,800
** P33,600  4 = P8,400  12 = P700
*** P2,000  5 = P400

Requirement (2)

Adjustments
Debit
Credit

(d) 700**
(c)
800

5,500

5,500

Adjusted Trial Balance
Debit
Credit
29,600
25,000
5,400
800
33,600
7,700
6,900
400
77,300
8,000
19,300
5,200
1,800
1,100
700
800
111,600
111,600


12

Chapter 9

Lorenzo Anicete, Attorney
Income Statement
For the Month Ended July 31, 2007
Revenues:
Legal service revenue
Expenses:
Salary expense
Rent expense
Utilities expense
Supplies expense
Depreciation expense
Total expenses
Net income

P19,300
P5,200
1,800
1,100
800
700
9,600
P 9,700

Lorenzo Anicete, Attorney
Statement of Owner’s Equity
For the Month Ended July 31, 2007
Lorenzo Anicete, capital, July 31, 2007
Add: Net income
Less: Withdrawals

Lorenzo Anicete, capital, July 31, 2007

P77,300
9,700
87,000
8,000
P79,000

Lorenzo Anicete, Attorney

Balance Sheet
July 31, 2007
ASSETS

LIABILITIES

Cash
Accounts receivable
Prepaid rent
Supplies
Furniture
P33,600
Less: Accum. depr. 7,700

P29,200
25,000
5,400
800

Total assets

P86,300

25,900

Accounts payable
Salary payable
Total liabilities
OWNER’S EQUITY
Lorenzo Anicete, capital
Total liabilities and
owner’s equity

P 6,900
400
P 7,300
79,000
P86,300