Solution manual fundamentals of accounting by cabrera chapter 13

Chapter 13
Completing the Accounting Cycle for a
Merchandising Business

Exercises
Exercise 1
Credit
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Allowance for Uncollectible Accounts
Rent Expense
Office Supplies Expense
Salaries Payable
Prepaid Insurance (or Unexpired Insurance)
Interest Revenue
Interest Payable
Unearned Rent
Accumulated Depreciation
Income Summary

Exercise 2
1. Interest Expense

Interest Payable
(P200,000 x 12% x 90/360 = P6,000)
2. Salaries Expense
Salaries Payable
(P180,000 x 2/5)
3. Interest Receivable
Interest Revenue
(P 300,000 x 12% x 45 / 360 = P4,500)
4. Insurance Expense
Prepaid Insurance
(P60,000 x 9 / 24 = 22,500)
5. Rent Income240,000
Unearned Rent Income
(P 360,000 x 8 / 12 = P 240,000)

6,000
6,000
72,000
72,000
4,500
4,500
22,500
22,500

240,000


2

Chapter 13

6. Depreciation Expense
80,000
Accumulated Depreciation
(P 640,000 – P 40,000 x 8/12 = P 80,000)
5 years

80,000

7. Uncollectible Accounts Expense
2,000
Allowance for Uncollectible Accounts
(P 6,000 – P4,000 credit balance = P 2,000)
8. Merchandise Inventory
Income Summary

2,000

85,000
85,000

Exercise 3
1. Unearned Admissions
Admissions Income
(P1,000,000 x 5 / 8 = P 625,000 )
2.

625,000
625,000

Cash of P1,000,000 was received in advance and was duly recorded by the
Association as an asset with a corresponding recognition of a liability,
“Unearned Admissions.” Thus, it can spend the money for regular
operations. The liability, “Unearned Admissions” is reflected in the books
and financial statements of the Association until it is earned, and transferred
to “Admissions Income.”

Exercise 4
Shown below are selected worksheet columns. Indicate by a check mark in
which columns the balances of the following accounts should appear:
Account Title
1. Cash
2. Carissa, Drawing
3. Merchandise Inventory beginning
4. Utilities Expense
5 Allowance for Bad Debts
6 Merchandise Inventory, end
7 Purchase Discount
8 Freight In
9 Unearned Fees
10 Sales returns and Allowances
11. Sales
12 Net Loss

Income Statement
Debit
Credit

Balance Sheet
Debit

Credit

















Completing the Accounting Cycle for a Merchandising Business

3

Exercise 5
1.

a.

b.

c.

d.

e.

f.

Interest Expense
Interest Payable
(P1,000,000 x 6% x 10/12 =
P50,000)

50,000

Prepaid Insurance
Insurance Expense
(P72,000 x 30/36 = P60,000)

60,000

Prepaid Rent
Rent Expense
(P180,000 x 9/12 = P240,000)

135,000

Uncollectible Accounts Expense
Allowance for Uncollectible Accounts
(P1,000 debit balance + P1,500
= P 2,500)

Salary Expense
Salaries Payable
(P300,000 x 2/5 = P120,000)
Depreciation Expense – Office Equipment
Accumulated Depreciation – Office
Equipment

50,000

60,000

135,000
2,500
2,500
120,000
120,000
116,000
116,000

P960,000  10 yrs.
= P 96,000 +
P240,000  10 yrs x 10/12 = 20,000 = P 116,000

g.
h.

i.

2.

Supplies on Hand
Supplies Expense

7,000
7,000

Rental Revenue
Unearned Rent
(P300,000 x 4/6 = P 200,000)

200,000

Income Summary
Merchandise Inventory

300,000

Merchandise Inventory
Income Summary

360,000

a, b, c, e, g & h

200,000

300,000
360,000

4

Chapter 13

Exercise 6
1.

a.

Unearned Rent
Rent Revenue
(P540,000 x 6/18 = P 180,000)

180,000
180,000

No reversing entry
b.

Insurance Expense
Prepaid Insurance
(P180,000 x 3/24 = P 22,500)

22,500
22,500

No reversing entry
2.

a.

Rent Revenue
Unearned Rent
(P540,000 x 12/18 = P360,000)

360,000
360,000

Reversing entry:

b.

Unearned Rent
Rent Revenue

360,000

Prepaid Insurance
Insurance Expense
P180,000 x 21/24 = P 157,500

157,500

360,000
157,500

Reversing entry:
Insurance Expense
Prepaid Insurance

157,500
157,500

Exercise 7
1.

a.

Income Summary
Inventory, beg.
Inventory, end
Income Summary

b.

Inventory, end
Purchases Returns
Cost of Goods Sold
Purchases
Freight-in

50,000
50,000
140,000
140,000
140,000
20,000
2,000,000
2,100,000
10,000

Completing the Accounting Cycle for a Merchandising Business

2.

Inventory, beg.
Approach 2
a. Sales
Interest Income
Income Summary
b.

c.

d.

5

50,000
5,000,000
25,000
5,025,000

Income Summary
Cost of Goods Sold
General Expense
Sales Returns
Sales Discounts
Selling Expenses

Interest Expense

2,980,000

Income Summary
Castro, Capital

2,045,000

2,000,000
500,000
5,000
10,000
450,000
15,000
2,0450,000

Castro, Capital
Castro, Drawing

500,000
500,000

Exercise 8
1.
2.
3.
4.
5.

A
A
A
A
B

6.
7.
8.
9.
10.

b or c
A
C
A
B

11.
12.
13.
14.
15.

b
a
a
a
c

16.
17.
18.
19.
20.

b
a
c
b
b

Exercise 9
1.

a.

Insurance Expense
Prepaid Insurance
P72,000 x 3/36 = P66,000

6,000
66,000

No reversing entry
b

Unearned Rent
Rent Revenue
P270,000 x 2/9

60,000
60,000

No reversing entry
c.

Supplies on Hand
Supplies expense

3,000
3,000


6

Chapter 13

Reversing entry:
Supplies expense
Supplies on hand
d.

Depreciation Expense
Accumulated Depreciation
P460,000 – 10,000 /10 x 9/12) =
P33,750

3,000
3,000

33.750
33,750

No reversing entry
e.

Uncollectible Accounts Expense
Allowance for Uncollectible Accounts

4,500
4,500

No reversing entry
f.

Interest Receivable
Interest Revenue
P150,000 x 12% x 30/360 =
P1,500

1,500
1,500

Reversing entry:
Interest Revenue
Interest Receivable
g.

Salary Expense
Salaries Payable

1,500
1,500
40,000
40,000

Reversing entry:
Salaries Payable
Salary Expense
h.

Merchandise Inventory
Income Summary

40,000
40,000
172,500
172,500


Completing the Accounting Cycle for a Merchandising Business

7


Completing the Accounting Cycle for a Merchandising Business

Exercise 10

8

9

Chapter 13

Exercise 11
Syyap Services: Effects of Adjustments on the Accounts in the Statement of
Recognized Income and Expenses (Income Statement) and the Statement of
Financial Position (Balance Sheet)

Adjustin
g Entry
a.
b.
c.
d.
e.
f.
g.

Statement of Recognized
Income and Expenses
Revenu
Expense
Net
e
s
Income
NE

+
+
NE
+
NE
+
NE
+
NE
+
+
NE
+
NE
+
-

Statement of Financial
Position
Liabilitie
Assets
s
Capital
NE
+
+
NE
+
NE
NE

NE
NE
+
NE
+
-

Exercise 12
a.
b.
c.

d.

e.
f.

Income Summary
Merchandise Inventory

40,000

Merchandise Inventory
Income Summary

50,000

40,000
50,000

Sales
Purchase Returns & Allowance
Income Summary

1,900,000
30,000

Income Summary
Sales Returns and Allowance
Purchases
Freight-in
Supplies Expense
Insurance Expense
Salary Expense
Depreciation Expense
Office Expense

1,343,000

1,930,000
50,000
1,000,000
40,000
6,000
9,000
180,000
8,000
50,000

Income Summary

Olson, Capital

587,000

Olson, Capital
Olson, Drawing

60,000

587,000
60,000


10

Chapter 13

Multiple Choice Questions
1.
2.
3.

C
C
C

4.
5.
6.

D
B
B

7.
8.
9.

B
C
B

10.

11.
12.
13.
14.
15.

F
T
F
T
F

16.
17.
18.
19.

20.

A

True or False
1.
2.
3.
4.
5.

T
F
T
F
F

6.
7.
8.
9.
10.

T
F
T
T
F

T

T
T
T
F


Completing the Accounting Cycle for a Merchandising Business

Test Material
Test Material 13-1

11


12

Chapter 13

Test Material 13-2


Completing the Accounting Cycle for a Merchandising Business

13

Test Material 13-3
Requirements (1) and (5)
ACCOUNT
DATE
2008

Jan. 31

ITEM
Bal.

ACCOUNT
DATE
2008
Jan. 31

31

31

JRNL.
REF

JRNL.
REF

Adj.

DEBIT

DEBIT

DEBIT

ACCOUNT NO.

CREDIT

SUPPLIES

Adj.

DEBIT

J.3

JRNL.
REF

CREDIT

15

BUILDING

ITEM
Bal.

80
0

00
0

CREDIT

14

BALANCE
DEBIT
CREDIT
27 0 0
0
12 0 0
0

ACCOUNT NO.

DEBIT

13

BALANCE
DEBIT
CREDIT
654 0 0
0
637 2 0
0

ACCOUNT NO.

JRNL.
REF

12

BALANCE
DEBIT
CREDIT
190 9 0
0

CREDIT

16

11

BALANCE
DEBIT
CREDIT
64 3 0
0

CREDIT

ACCOUNT NO.

J.3

ITEM
Bal.

ACCOUNT
DATE

2008
Jan. 1

JRNL.
REF

INVENTORY

ITEM
Bal.

ACCOUNT
DATE
2008
Jan. 1

ACCOUNT NO.

ACCOUNTS RECEIVABLE

ITEM
Bal.

ACCOUNT
DATE
2008
Jan. 31

CASH

15

BALANCE
DEBIT
CREDIT
1 881 7 0
0


14

Chapter 13

ACCOUNT
DATE
2008
Jan. 1
31

ITEM
Bal.
Adj.

ACCOUNT
DATE
2008
Jan. 1

DATE
2008

Jan. 31

DATE
2008
Jan. 31

DATE
2008
Jan. 31

00
0

JRNL.
REF

DEBIT

CREDIT

JRNL.
REF

DEBIT

J.3

JRNL.
REF

JRNL.
REF
J.3

JRNL.
REF
J.3

CREDIT
48

DEBIT

00
0

CREDIT
1 500
1

UNEARNED SALES REVENUE

CREDIT
7 800

21

BALANCE
DEBIT
CREDIT

283 000

22

BALANCE
DEBIT
CREDIT
11 500

ACCOUNT NO.
DEBIT

18

BALANCE
DEBIT
CREDIT
58 000
106 000

ACCOUNT NO.

DEBIT

17

BALANCE
DEBIT
CREDIT
456 0 0

0

ACCOUNT NO.
CREDIT

16

BALANCE
DEBIT
CREDIT
360 000
400 000

ACCOUNT NO.

INTEREST PAYABLE

ITEM
Adj.

ACCOUNT

4

SALARY PAYABLE

ITEM
Adj.

ACCOUNT

CREDIT

J.3

ACCOUNTS PAYABLE

ITEM
Bal.

ACCOUNT

DEBIT

ACCUMULATED DEPRECIATION - FIXTURES ACCOUNT NO.

ITEM
Bal.
Adj.

ACCOUNT

JRNL.
REF

FIXTURES

ITEM
Bal.

ACCOUNT
DATE
2008
Jan. 1
31

ACCUMULATED DEPRECIATION - BUILDING ACCOUNT NO.

23

BALANCE
DEBIT
CREDIT
7 800

ACCOUNT NO.

24


Completing the Accounting Cycle for a Merchandising Business
DATE
2008
Jan. 1
31

ITEM
Bal.
Adj.

ACCOUNT
DATE
2008
Jan. 31

DATE
2008
Jan. 1
31
31

DATE
2008
Jan. 31
31

Clo.

DATE
2008
Jan. 31
31
31

DATE
2008
Jan. 31

600

JRNL.
REF

DEBIT

ACCOUNT NO.

ACCOUNT NO.

JRNL.
REF

DEBIT

CREDIT

J.3

194
92

JRNL.
REF

Clo.
Clo.

J.3
J.3

DEBIT

1 551

CREDIT

92

JRNL.
REF

00
0

DEBIT

1 639
194

CREDIT
1 833 3 0
0

32

33

BALANCE
DEBIT
CREDIT

1 833 300

300
000

194
–
ACCOUNT NO.

DEBIT

CREDIT
53 6 0

800

BALANCE
DEBIT
CREDIT
92 0 0
0
–

ACCOUNT NO.

SALES REVENUE

ITEM
Bal.

BALANCE
DEBIT
CREDIT
1 449 800
1 643 800

ACCOUNT NO.

INCOME SUMMARY
JRNL.
REF
J.3

00
0

31

000

J.3

ITEM
Clo.

25

BALANCE
DEBIT
CREDIT

87 000

CREDIT

JC CRUZ, DRAWING

Clo.

ACCOUNT

53

J.3

ITEM
Bal.

ACCOUNT

J.3

BALANCE
DEBIT
CREDIT
65 600
12 000

CREDIT

JC CRUZ, CAPITAL

ITEM
Bal.
Clo.

ACCOUNT

DEBIT

NOTE PAYABLE, LONG-TERM

ITEM
Bal.

ACCOUNT

JRNL.
REF

15

000

41

BALANCE
DEBIT
CREDIT
1 779 700

16

Chapter 13
0
31
31

Adj.
Clo.

ACCOUNT
DATE
2008
Jan. 31
31

31

Clo.

DATE
2008
Jan. 31

JRNL.
REF

JRNL.
REF

CREDIT

73

DEBIT

DEBIT

16

J.3

31

Clo.

J.3

JRNL.
REF
J.3
J.3
J.3
J.3

CREDIT

800

JRNL.
REF

80
0

CREDIT

7 500
10 000
12 000
244 700

CREDIT

51

54

BALANCE
DEBIT
CREDIT
215 200
222 700
232 700
244 700
–

ACCOUNT NO.

DEBIT

43

BALANCE
DEBIT
CREDIT
1 030 0 0
0
1 046 8 0
0
–

ACCOUNT NO.

DEBIT

42

BALANCE
DEBIT
CREDIT
81 4 0
0
–

ACCOUNT NO.

1 046

GENERAL EXPENSE

ITEM
Bal.

40
0

300

BALANCE
DEBIT
CREDIT
73 0 0
0
–

ACCOUNT NO.

CREDIT

SELLING EXPENSE

ITEM
Bal.
Adj.
Adj.
Adj.
Clo.

00
0

81

JRNL.
REF

Adj.

DATE
2008
Jan. 31

DEBIT

COST OF GOODS SOLD

ITEM
Bal.

ACCOUNT

ACCOUNT NO.

J.3

31

DATE

2008
Jan. 31
31
31
31
31

1 833
–

SALES RETURNS AND ALLOWANCES

Clo.

ACCOUNT

300

J.3

ITEM
Bal.

ACCOUNT

1 833

SALES DISCOUNTS

ITEM

Bal.

ACCOUNT
DATE
2008
Jan. 31

J.3
J.3

55

BALANCE
DEBIT
CREDIT
100 600


Completing the Accounting Cycle for a Merchandising Business
31
31
31
31
31

Adj.
Adj.
Adj.
Adj.
Clo.

ACCOUNT
DATE
2008
Jan. 31
31

J.3
J.3
J.3
J.3
J.3

500
000
000
500
185 600

INTEREST EXPENSE

ITEM
Adj.
Clo.

7
30
36
11

JRNL.
REF
J.3
J.3

108
138
174
185
–

ACCOUNT NO.

DEBIT
7 800

CREDIT

7

80
0

17

100
100
100
600

56

BALANCE
DEBIT
CREDIT
7 80
0
–


Completing the Accounting Cycle for a Merchandising Business

18

Requirement (2)
Happy Palace Company
Worksheet
For the Month Ended January 31, 2008

Cash
Accounts receivable
Inventory
Supplies
Building
Accumulated depreciation
– building
Fixtures
Accumulated depreciation
– fixtures
Accounts payable

Salary payable
Interest payable
Unearned sales revenue
Notes payable, long-term
JC Cruz, Capital
JC Cruz, Drawing
Sales revenue
Sales discounts
Sales returns and
allowance
Cost of goods sold
Selling expense

General expense

Interest expense

Trial Balance
DR
CR
64,300
190,900
654,000
27,000
1,881,700
456,000

100,600

Income Statement

DR
CR

(f) 16,800
(a) 15,000
(b-1)40,000

58,000
283,000

(b-2)48,000

(c) 53,600

1,779,700

400,000
106,000
283,000
11,500
7,800
12,000
870,000
1,449,800

(d) 11,500
(e) 7,800

1,833,300
73,000

(f) 16,800
(a) 7,500
(b-1)10,000
*
(b-2)12,000
*
(a) 7,500
(b-1)30,000
*
(b-2)36,000
*
(d) 11,500
(e) 7,800

Balance Sheet
DR
CR
64,300
190,900
637,200
12,000
1,881,700
456,000

(c) 53,600

73,000
81,400
1,030,000

215,200

CR

360,000

65,600
870,000
1,449,800
92,000

Adjustments
DR

81,400
1,046,800
244,700

185,600

7,800

9,200


Completing the Accounting Cycle for a Merchandising Business
4,866,100

4,866,100

192,700

192,700

Net income
*Instructional note: Students may combine the b-1 and b-2 amounts as P22,000 Selling expense and P66,000 General expense.

1,639,300
194,000
1,833,300

1,833,300

3,334,100

1,833,300

3,334,100

19

3,140,100
194,000
3,334,100


Completing the Accounting Cycle for a Merchandising Business

20

Requirement (3)
Happy Palace Company
Income Statement
For the Month Ended January 31, 2008
Sales revenue
P1,833,300
Less: Sales discounts
P73,000
Sales returns and allowances
81,400
154,400
Net sales revenue
Cost of goods sold
Gross margin
Operating expenses:
Selling expenses
P 244,700
General expense
185,600
Income from operations
Other expense:
Interest expense
Net income
Happy Palace Company
Statement of Owner’s Equity
For the Month Ended January 31, 2008
JC Cruz, capital, January 1, 2008
Add: Net income
Less: Withdrawals
JC Cruz, capital, January 31, 2008

P1,678,900
1,046,800
632,100
430,300
201,800
7,800
P 194,000

P1,449,800
194,000
1,643,800
92,000
P1,551,800


Completing the Accounting Cycle for a Merchandising Business

21

Happy Palace Company
Balance Sheet
January 31, 2008
ASSETS
Current assets:
Cash
Accounts receivable
Inventory
Supplies
Total current assets

Plant:
Building
Less: Accumulated depreciation
Fixtures
Less: Accumulated depreciation
Total assets
LIABILITIES
Current:
Accounts payable
Salary payable
Interest payable
Unearned commission revenue
Total current liabilities
Long-term:
Note payable
Total liabilities
OWNER’S EQUITY
JC Cruz, capital
Total liabilities and owner’s equity

P

P1,881,700
40,000
P 456,000
106,000

64,300
190,900
637,200

12,000
904,400

1,481,700
350,000
P2,736,100
P 283,000
11,500
7,800
12,000
314,300
870,000
1,184,300
1,551,800
P2,736,100


22

Chapter 13

Requirement (4)
GENERAL JOURNAL
Date
2008
January 31

31

31

31

31

31

31

Post
Ref

Account Titles and Explanation
Adjusting Entries
Selling Expense
General Expense
Supplies

Debit

54
55
14

7,500
7,500

Selling Expense
General Expense
Accumulate depreciation – Building

54
55
16

10,000
30,000

Selling Expense
General Expense
Accumulated
Fixtures

54
55
18

12,000
36,000

Unearned Sales Revenue
Sales Revenue

24
41

53,600

General Expense
Salary Payable

55
22

11,500

Interest Expense
Interest Payable

56
23

7,800

Cost of Goods Sold
Inventory

51
13

16,800

depreciation

–

Credit

15,000

40,000

48,000

53,600

11,500

7,800

16,800


Completing the Accounting Cycle for a Merchandising Business

23

GENERAL JOURNAL
Date
2008
January 31

31

31

31

Account Titles and Explanation
Closing Entries

Sales Revenue
Income Summary

Post
Ref

Debit

41
33

1,833,300

Income Summary
Cost of Goods Sold
Sales Discounts
Sales Returns and Allowances
Selling Expense
General Expense
Interest Expense

33
51
42
43
54
55
56

1,639,300

Income Summary
(P1,833,300 - P1,639,300)
JC Cruz, Capital

33
31

194,000

JC Cruz, Capital
JC Cruz, Drawing

31
32

92,000

Credit

1,833,300

1,046,800
73,000
81,400
244,700
185,600
7,800

194,000

92,000