Chapter 13 Completing the Accounting Cycle for a Merchandising Business Exercises Exercise Credit 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 Interest Expense Interest Payable (P200,000 x 12% x 90/360 = P6,000) Salaries Expense Salaries Payable (P180,000 x 2/5) Interest Receivable Interest Revenue (P 300,000 x 12% x 45 / 360 = P4,500) Insurance Expense Prepaid Insurance (P60,000 x / 24 = 22,500) Rent Income240,000 Unearned Rent Income (P 360,000 x / 12 = P 240,000) 6,000 6,000 72,000 72,000 4,500 4,500 22,500 22,500 240,000 Chapter 13 Depreciation Expense 80,000 Accumulated Depreciation (P 640,000 – P 40,000 x 8/12 = P 80,000) years 80,000 Uncollectible Accounts Expense 2,000 Allowance for Uncollectible Accounts (P 6,000 – P4,000 credit balance = P 2,000) Merchandise Inventory Income Summary 2,000 85,000 85,000 Exercise Unearned Admissions Admissions Income (P1,000,000 x / = P 625,000 ) 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 Shown below are selected worksheet columns Indicate by a check mark in which columns the balances of the following accounts should appear: Account Title Cash Carissa, Drawing Merchandise Inventory beginning Utilities Expense Allowance for Bad Debts Merchandise Inventory, end Purchase Discount Freight In 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 Exercise 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 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 Chapter 13 Exercise 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 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 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 Inventory, beg Approach a Sales Interest Income Income Summary b c d 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 A A A A B 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 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 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 Completing the Accounting Cycle for a Merchandising Business Exercise 10 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 C C C D B B B C B 10 11 12 13 14 15 F T F T F 16 17 18 19 20 A True or False T F T F F 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 00 CREDIT 14 BALANCE DEBIT CREDIT 27 0 12 0 ACCOUNT NO DEBIT 13 BALANCE DEBIT CREDIT 654 0 637 0 ACCOUNT NO JRNL REF 12 BALANCE DEBIT CREDIT 190 0 CREDIT 16 11 BALANCE DEBIT CREDIT 64 0 CREDIT ACCOUNT NO J.3 ITEM Bal ACCOUNT DATE 2008 Jan JRNL REF INVENTORY ITEM Bal ACCOUNT DATE 2008 Jan ACCOUNT NO ACCOUNTS RECEIVABLE ITEM Bal ACCOUNT DATE 2008 Jan 31 CASH 15 BALANCE DEBIT CREDIT 881 0 14 Chapter 13 ACCOUNT DATE 2008 Jan 31 ITEM Bal Adj ACCOUNT DATE 2008 Jan DATE 2008 Jan 31 DATE 2008 Jan 31 DATE 2008 Jan 31 00 JRNL REF DEBIT CREDIT JRNL REF DEBIT J.3 JRNL REF JRNL REF J.3 JRNL REF J.3 CREDIT 48 DEBIT 00 CREDIT 500 UNEARNED SALES REVENUE CREDIT 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 ACCOUNT NO CREDIT 16 BALANCE DEBIT CREDIT 360 000 400 000 ACCOUNT NO INTEREST PAYABLE ITEM Adj ACCOUNT 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 31 ACCUMULATED DEPRECIATION - BUILDING ACCOUNT NO 23 BALANCE DEBIT CREDIT 800 ACCOUNT NO 24 Completing the Accounting Cycle for a Merchandising Business DATE 2008 Jan 31 ITEM Bal Adj ACCOUNT DATE 2008 Jan 31 DATE 2008 Jan 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 551 CREDIT 92 JRNL REF 00 DEBIT 639 194 CREDIT 833 0 32 33 BALANCE DEBIT CREDIT 833 300 300 000 194 – ACCOUNT NO DEBIT CREDIT 53 800 BALANCE DEBIT CREDIT 92 0 – ACCOUNT NO SALES REVENUE ITEM Bal BALANCE DEBIT CREDIT 449 800 643 800 ACCOUNT NO INCOME SUMMARY JRNL REF J.3 00 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 779 700 16 Chapter 13 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 CREDIT 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 030 0 046 0 – ACCOUNT NO DEBIT 42 BALANCE DEBIT CREDIT 81 0 – ACCOUNT NO 046 GENERAL EXPENSE ITEM Bal 40 300 BALANCE DEBIT CREDIT 73 0 – ACCOUNT NO CREDIT SELLING EXPENSE ITEM Bal Adj Adj Adj Clo 00 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 31 833 – SALES RETURNS AND ALLOWANCES Clo ACCOUNT 300 J.3 ITEM Bal ACCOUNT 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 30 36 11 JRNL REF J.3 J.3 108 138 174 185 – ACCOUNT NO DEBIT 800 CREDIT 80 17 100 100 100 600 56 BALANCE DEBIT CREDIT 80 – 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 ... 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... Completing the Accounting Cycle for a Merchandising Business Completing the Accounting Cycle for a Merchandising Business Exercise 10 Chapter 13 Exercise 11 Syyap Services: Effects of Adjustments... 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