EXERCISES ON CORRELATION AND RECONSTRUCTION OF ACCOUNTS

(source: Constructing Accounting 6th Edition by Kimwell)

E5.3 Cash in Bank balance of Tessie Company on January 1, 2016 was P70,000,
representing 35% paid-up capital of its authorized capital stock of P200,000.
During the year, you ascertained the following postings to some accounts, as
follows:

Dr. Cr.
Petty Cash Fund P 2,000
Accounts Receivable Trade 450,000 P 290,000
Subscriptions Receivable 60,000 50,000
Delivery Equipment 50,000
Accounts Payable Trade 280,000 430,000
Bank Loan 35,000 80,000
Accrued Expenses 1,500
Subscribed Capital Stock 60,000
Unissued Capital Stock 130,000
Authorized Capital Stock 200,000
Sales 450,000
Purchases 430,000
Expenses (including depreciation 90,000
of P5,000, and accrued expenses
of P1,500)

Compute the Cash in Bank balance as of December 31, 2016.

E5.4 Certain information related to the operations of year 2016 of the Angel
Company follows:

Accounts Receivable, January 1, 2016 P 80,000

Accounts Receivable collected in 2016 260,000
Cash sales during 2016 50,000
Inventory, January 1, 2016 120,000
Inventory, December 31, 2016 110,000
Purchases during 2016 200,000
Gross margin on sales 90,000

Compute for the December 31, 2016 balance of the Accounts Receivable.

E5.5 You are given the following data for Dansalan Company:

Cash Credit
Cost of sales P 50,000 P 450,000
Cash received from customers 65,000 585,000

Assuming that merchandise were marked to sell as follows: cash sales at

30% above cost, and credit sales at 40% above cost, all of which are
collectible, compute for the balance of accounts receivable at the end of the
year.
E5.6 The following information pertains to Angeles Company for the year
2016.

Cash sales P 64,000

Cash collected on accounts receivable 440,000
Accounts Receivable, January 1, 2016 110,000
Accounts Receivable, December 31, 2016 95,000
Bad debts written off 6,500
Purchases, net 350,200
Inventory, December 31, 2016 84,000
Gross margin on sales 35%

Compute for the companys merchandise inventory on December 31, 2015.

E5.7 The merchandise inventory of CD Limited on January 1, 2016 was

P450,000. During 2016, the company has recorded sales in the amount of
P1,500,000 and merchandise purchases of P1,100,000. The gross profit margin
on sales is 30%.

What is the merchandise inventory balance as of December 31, 2016?

E5.8 The following information was taken from Kay Companys accounting
records for the year ended December 31, 2016.

Increase in raw materials P 15,000

inventory
Decrease in finished good 35,000
inventory
Raw materials purchased 430,000
Direct labor payroll 200,000
Factory overhead 300,000
Freight out 45,000

There was no work in process inventory at the beginning or at the end

of the year. Compute for the cost of goods sold in 2016.

E5.9 The following information is available for Cooke Company for 2016:

Net Sales P 1,800,000

Freight in 45,000
Purchase discounts 25,000
Ending inventory 120,000

The gross margin is 40% of net sales. Compute for the cost of goods
available for sale in 2016.

E5.10 The following information is made available from the records of AB &
Company for 2016.

Beginning inventory P 80,000

 Freight in 25,000
Purchase returns 40,000
Ending inventory 100,000
Selling expenses 250,000
Sales discounts 15,000

The cost of sales is six times the selling expenses.

Required:

Cost of goods available for sale

Total purchases

E5.11 The 2016 operations of Legarda Company resulted in the following

information:

The cost of goods sold amounts to P350,000.

The beginning inventory is P50,000 higher than the ending inventory,

the latter being equivalent to 20% of purchases during the year.

Gross profit margin of the company is 30% of net sales.

Total operating expenses amounted to 60% of the gross profit, while

sales returns were 2% of net sales

The company is subject to an income tax rate of 35%.

Required:

Net income after tax

Net sales of the period

Total purchases of the period.

E5.12 Draw a T-account for each of the following cases. Post the given
information. Place the ending balances on the opposite side for the purpose
of reconstruction. Determine the missing information.

Cost of Sales. Cost of goods sold, P11,500; ending balance closed to

income summary, P11,230.

Appropriated for plant expansion. Beginning balance, P20,000;

increase made during the period, P10,000; ending balance, zero.

Insurance Expense. Reversing entry for the prepaid insurance at the

beginning of the period, P400; payment during the period, P2,100;
ending balance closed to income summary, P2,000.

Allowance for depreciation-machinery. Beginning balance, P6,500;

amount pertaining to the disposed asset, P2,400; ending balance,
P8,100.
 Accounts receivable. Beginning balance, P25,000; sales returns and
allowances, P1,300; sales discounts, P750; cash collections,
P76,500; notes received as settlement of open account, P15,000;
notes receivable dishonored, P5,000; ending balance, P26,700.

Allowance for doubtful accounts. Beginning balance, P750; adjustment

for uncollectible accounts at the end of the current period, P460;
ending balance, P1,040.

Retained earnings. Beginning balance, P23,500; increase in the

appropriated retained earnings, P20,000; ending balance, P28,600.

Unearned interest income. Beginning balance, P150; adjustment for

the amount earned during the period, P320; ending balance, P70.

E5.13 Based on the following trial balance of totals, reconstruct the entries
recorded and posted in the books of Garcia Company during its first month of
operations:

Dr. Cr.
Cash P 750,000 P 640,000
Accounts Receivable 400,000 350,000
Equipment 200,000
Vouchers Payable 640,000 680,000
Capital Stock 300,000
Sales 500,000
Purchases 360,000
Operating Expenses 120,000
2,470,000 2,270,000

E5.14 Based on the following data, reconstruct the adjusting entries prepared
at the end of the year. Give alternative answers, if any.

Before After adjustment

adjustment
Taxes P 40,000 P 42,500
Advertising 3,000 1,500
Rent income 4,200 3,000
Interest income 100 150
Depreciation building - 20,000
Doubtful accounts - 2,000

E5.15 Immediately after posting the reversing entries, the ledger showed the
following account balances:

Dr. Cr.
Royalty income P 2,100
Taxes and licenses 2,500
Advertising expense P 2,100
Interest income 50
 What reversing entries were prepared at the beginning of the period?

E5.16 Compute for the amount of:

Discount. The cash collected after deducting a 2% discount is

P250,880.

Gross margin. The average gross margin of the business is 35% of the
cost of sales. Sales during the period is P607,500.

Bonus to the manager. The manager is entitled to a bonus of 10% of

the net income after deducting the bonus. The income before
deducting the bonus is P726,000.

Bonus to the manager. The manager is entitled to a bonus of 10% of

the net income after deducting the bonus and the income tax. The
income tax expense is 25% of the income after deducting the bonus.

During the year, the income before deducting both the bonus and
income tax is 215,000.

Sales of the period. The company wants to make a net income of

P100,000. The cost of goods sold is 55% of sales. Fixed operating
expenses amount to P120,000, and variable operating expenses amount
to 20% of sales.

E5.17 Solve the following cases. Show necessary computations in good form.

The cash collected from a customer, after deducting 3% discount,

amounted to P80,360. How much was the gross accounts receivable? How
much sales discounts were granted to the customer?

The cash paid to a creditor, after deducting 3% discount, amounted

to P62,080. How much was the gross liability? How much purchase
discounts were availed upon payment?

The total sales from January to May was P287,000, and total sales
from January to April P240,000. How much was the sales in May?

All sales are made at a gross margin of 40% of cost. At how much
amount will a sales return billed at P5,600 be recorded as inventory
received under the perpetual inventory system?

E5.18 From the following information, prepare the income statement of the
York Company for the year ended, December 31, 2016:

Gross profit of P175,000 amounted to 35% of net sales

Merchandise inventory beginning is 8% of net sales

Merchandise inventory end is 11% of net sales

Marketing expenses is 15% of net sales

 General and administrative expenses is 10% of net sales

Income tax for the year is 30% of income before income tax.

P5.1

P5.2

P5.3

P5.4 Using the information given in Problem P5.3 and the additional
information given below, answer the following questions about the operations
of Michael Corporation:

If all the fixed assets were acquired on the same date, when were
the fixed assets acquired?

What is the estimated useful life of the building? Of the office

equipment? Of the store equipment?

If the doubtful accounts are estimated at 1/2% of the net sales of

the period, how much was the amount of the gross sales during the
period?

If the allowance for doubtful accounts is maintained at 5% of the

accounts receivable, how much is the outstanding accounts receivable
as of December 31, 2016?

If the note receivable outstanding as of December 31, 2016 is for 60

days, 12%, and the accrued interest is P120, what was the issue date
of the note?

When is the maturity date of the outstanding note receivable?

If income tax payable is estimated at 35% of the income of the

period, how much was the income before income tax during 2016? How
much was the net income after income tax?

How much interest income was collected in cash during the period?

Assuming that there was an accrued rent income of P1,200 as of

January 1, 2016, how much rent was collected in cash during 2016?

How much is the average monthly rent earned by Michael Corporation?

P5.5 Given below are Goodwill Tradings trial balance of balances as of

December 1, and the trial balance of totals as of December 31, 2016.

Trial Balance as of
December 1, 2016 December 31, 2016
Account title Dr. Cr. Dr. Cr.

Cash in bank P 90,500 P 626,600 P 581,200

Accounts receivable 122,700 364,700 225,000
Allowance for doubtful P 2,900 2,900
accounts
Merchandise inventory 87,500 432,500 362,000
Prepaid insurance 1,200
Furniture and equipment 284,700 384,700
Accumulated depreciation 65,000 65,000
furniture and equipment
Accounts payable 62,600 287,000 375,600
Loans payable 100,000 100,000 100,000
Capital stock 300,000 400,000
Subscribed capital stock 100,000 100,000
Subscriptions receivable 105,000 105,000
Premium on capital stock 10,000 15,000
Retained earnings, 24,900 24,900
December 1
Appropriated for 20,000 20,000
contingencies
Dividends 20,000
Dividends payable 20,000
Sales 450,800
Cost of sales 362,000
Marketing expenses 38,000
General and administrative 21,000
expense
Interest expense 2,000
Sales discounts 2,700
Totals P 585,400 P 585,400 P 2,847,400 P 2,847,400

Required:

Based on the given trial balances, reconstruct, in summary form, the

journal entries posted to the ledger of Goodwill Trading during the month
December 2016.

P5.6 The unadjusted and adjusted trial balances of the Reycor Supplies
Company as of March 31, 2016 are given here:

As of March 31, 2016

Unadjusted trial balance Adjusted trial balance
Account title Dr. Cr. Dr. Cr.

Cash P 70,400 P 70,400

Inventory, January 1 190,000 190,000
Accounts receivable 107,000 107,000
Store supplies 13,400 5,400
Prepaid insurance 4,500 1,500
Land 344,000 344,000
Building 500,000 500,000
Accumulated depreciation P 101,000 P 125,000
building
Delivery equipment 140,000 140,000
Accumulated depreciation 43,200 56,000
delivery equipment
Notes payable 29,000 29,000
Accounts payable 81,500 81,500
Accrued salaries payable 14,760
Reynaldo Corpuz, capital 1,009,940 1,009,940
Reynaldo Corpuz, drawing 42,000 42,000
Sales 1,430,000 1,430,000
Sales returns and 18,100 18,100
allowances
Purchases 1,093,000 1,093,000
Purchase returns and 13,000 13,000
allowances
Salesmens salaries 71,660 80,000
Advertising 12,000 12,000
Delivery expenses 25,000 25,000
Depreciation delivery 12,800
equipment
Rent expense 22,000 22,000
Office salaries 54,580 61,000
Depreciation building 24,000
Insurance expense 3,000
Store supplies used 8,000
Rent expense 2,707,640 2,707,640 2,759,200 2,759,200

Required:

From the foregoing, prepare:

The adjusting entries made on March 31, 2016.

The reversing entries to be prepared on April 1, 2016.

P5.7 The Malakas Manufacturing Company commenced operations on July 1, 2016.

The given trial balance of transactions shows the gross debit and credits to
each account of the ledger as of December 31, 2016, except for the work in
process and the finished goods inventory accounts. The company uses a cost
system for its manufacturing operations.

Transactions Balances
Dr. Cr. Dr. Cr.

Cash in Bank P 4,640,000 P 3,700,000 P 940,000

Notes receivable 200,000 120,000 80,000
Accounts receivable 3,400,000 3,020,000 380,000
Materials inventory 1,250,000 1,180,000 70,000
Finished goods inventory ?? ?? 300,000
Work in process inventory ?? ?? 140,000
Factory supplies 180,000 140,000 40,000
inventory
Prepaid insurance 19,000 15,000 4,000
Machinery and equipment 950,000 950,000
Mortgage payable 500,000 P 500,000
Accrued interest on 7,500 7,500
mortgage
Accrued payroll 1,451,000 1,470,000 19,000
Capital stock 1,500,000 1,500,000
Vouchers payable 4,200,000 4,605,000 405,000
Sales 3,600,000 3,600,000
Cost of goods sold 2,500,000 2,500,000
Marketing expenses 275,000 275,000
Administrative expenses 290,000 290,000
Financial expenses 62,500 62,500

?? ?? 6,031,500 6,031,500

You are also given the following information:

The ending work in process inventory consist of the following:

Material P 60,000
Direct labor 45,000
Factory overhead 35,000

Insurance premiums apply as follows:

Factory 2/3

Office 1/3

The cost of the finished goods is made up of:

Material 40%

Direct labor 40%

Factory overhead 20%

Payroll incurred during the period consist of:

Direct labor P 1,165,000

Indirect labor 135,000

Marketing
p 80,000

Office 90,000

Required:
Using T-accounts, show the entries making up the transactions
included in the figures shown in the trial balance. Key each entry (debit and
corresponding credit? By the use of a letter.
P5.8 The following balances were gathered from the ledger of Edina
Corporation:

As of
January 1 December 31
Cash P 33,000 P 314,800
Accounts receivable 204,000 226,000
Allowance for doubtful accounts 4,000 6,400
Notes receivable 70,000 60,000
Merchandise inventory 354,000 338,000
Accrued interest income 1,000 500
Prepaid operating expenses 21,000 17,000
Investment in stock 40,000 30,000
Furniture and fixtures 280,000 300,000
Accumulated depreciation F&F 116,000 144,000
Equipment 390,000 410,000
Accumulated depreciation Equip. 130,000 152,000
Accounts payable 187,000 193,000
Loans payable 100,000 50,000
Accrued operating expenses 7,600 9,300
Accrued interest expense 900 700
Unearned rent income 500 1,500
Capital stock 700,000 1,000,000
Subscribed capital stock 100,000
Subscriptions receivable 60,000
Premium on capital stock 20,000 23,000
Retained earnings, December 1 67,000 86,400
Appropriated for contingencies 20,000 30,000

A detailed analysis of the cash account shows the following debits and
credits:

Cash
Beginning balance P 33,000 Accounts payable P 1,106,000
Capital stock 203,000 Loans payable 50,000
Accounts 1,507,000 Interest expense 9,800
receivable
Notes receivable 40,000 Operating 287,000
expenses
Interest income 2,100 Equipment 80,000
Rent income 13,000 F & F 20,000
Equip. (See note) 48,500 Dividends 50,000
Subscriptions rec. 60,000 Ending balance 314,800
Investment in 11,000
stock

(Equipment disposed of has an original cost of P60,000 and corresponding

accumulated depreciation of P10,000 as of that time.)

Required:

Reversing entries as of January 1, 2016

Journal entries to record the transactions completed during

the year.

Adjusting entries as of December 31, 2016.

P5.9 The Dunhill Metal Industries,

Inc. was organized on January 1, 2016.
Based on the given information,
prepare:
Statement of cost of good
manufactured for the year ended
December 31, 2016.
Income statement for the year
ended December 31, 2016.
Balance sheet as of December 31,
2016.

The following data are made

available to you:
 Material purchases during the
period amounted to P 282,500, P
2,500 of which were returned to
the creditors.
10% of the net purchases remained
unused as of December 31.
80% of the net purchases were paid
during the period.
Direct labor cost during the
period amounted to 50% of the
amount of net purchases, P 3,000
of which were unpaid as of
December 31.
Manufacturing overhead were 150%
of the direct labor cost. All were
paid in cash except for the
depreciation of the factory
equipment of P 20,000.
90% of the goods placed in process
were completed during the period.
of the goods completed were
sold.
Gross profit margin was 40% of
cost of sales.
 4/5 of the sales were collected in
cash during the period.
Marketing expenses amounted to
of net purchases. All were paid in
cash except for the depreciation
of the marketing equipment of P
7,000.
Administrative expenses amounted
to 80% of the marketing expenses.
All were paid in cash except for
the depreciation of the office
equipment of P 4,000.
Paid-up capital was P 600,000.
All fixed assets were purchased
for cash on January 2, 2016.
The annual depreciation rates used
during 2016 were:
Factory equipment 8%
Marketing equipment 10%
Office equipment - 10%
Income before income tax was P
38,540.
 Income tax provision was 30% of
income before income tax.

P5.10

Jackson Corporation provides an incentive compensation plan under

which its president is to receive a bonus equal to 10% of Jacksons
income in excess of P 1,000,000 before deducting income tax but
after deducting the bonus.

If income before the income tax and bonus is P 3,200,000, what is

the amount of the bonus of the president?

In an effort to increase sales, Reno Razor Company inaugurated a

sales promotional campaign on June 30, 2016. Reno placed a coupon in
each package of razor blades sold, the coupons being redeemable in
the form of a premium. Each premium cost P 3 and 5 coupons must be
surrendered by the customer to receive a premium. Reno estimated
that only 60% of the coupons issued will be redeemed.

For the six months ended December 31, 2016, the following
information is available:

Packages of razor blades sold 8,000,000

Number of coupons redeemed 2,000,000

What is the estimated liability for premium claims outstanding as of

December 31, 2016?

The following information is available for the Maryland

Corporations first year of operations:

Payment for merchandise purchased P 2,000,000

Merchandise inventory at the end of the year 600,000
Accounts payable balance, end of the year 400,000
Collections from customers 1,700,000
 All merchandise items were marked to sell at 30% above cost.

What should be the ending balance in accounts receivable assuming

all are deemed collectible?

The following information is available for the Eric Company for

2016:

Freight in P 200,000
Purchase returns 800,000
Marketing expenses 2,000,000
Ending merchandise inventory 900,000

The cost of sales is equal to 700% of marketing expenses.

What is the cost of goods available for sale?

Las Vegas Company had sales of P 3,000,000, variable costs of P

1,800,000, and fixed costs of P 800,000 for Product K.

What would be the amount of sales, in pesos, at the break-even

point?

The San Diego Company is planning to sell 200,000 units of Product

B. The fixed costs are P 400,000 and the variable costs are 60% of
the selling price.

In order to make a profit of P 100,000, how much should be the

selling price per unit?

P5.11 The following trial balance was prepared from the books of Rizal
Trading Corp. as of December 31, 2016. The balances represent the totals of
the debits and credits in each of the ledger accounts at the end of its first
year of operations.

Debit Credit
Cash in bank P 553,000 P 470,585
Petty cash fund 1,500
Accounts receivable 500,000 340,600
Allowance for bad debts 8,330
Subscriptions receivable 55,000 44,000
 Prepaid insurance 330
Furniture and equipment 55,555
Allowance for depreciation 5,330
Furniture and equipment
Accounts payable 292,000 400,000
Bank loan 30,000 75,000
Accrued expenses 2,000
Capital stock subscribed 40,000 50,000
Capital stock paid-up 140,000
Premium on capital stock 5,000
Sales 500,000
Purchases 400,000
Sales returns and allowances 6,600
Purchase returns and allowances 2,000
Salaries 30,000
Rent 7,200
Insurance 1,330 330
Taxes and licenses 12,000
Advertising 4,800
Office supplies 2,100
Maintenance and repairs 1,900
Bad debts 8,330
Depreciation furniture and 5,330
equipment
General expenses 36,200
Totals 2,043,175 2,043,175

Required:

Using the T-ledger accounts, reconstruct the entries that were made in
the corporations books for its first year of operations, 2016.