ASSIGNMENT – ACCRUAL BASIS, CASH BASIS, SINGLE ENTRY & ERROR CORRECTION

1ST SEMESTER, SY 2017-2018

PROBLEM-SOLVING. Write the final answer on a separate sheet of yellow paper. NO ERASURES.
1. The audited income statement of Uganda Company shows a net income of P175,000 for the year ended
December 31, 2015. Adjustment were made for the following errors:
 December 31, 2014, inventory overstated by P22,500.
 December 31, 2015, inventory understated by P37,500.
 A P10,000 customer’s deposit received in December 2015, was credited to sales in 2015. The goods
were actually shipped in January 2016.
Based on the given information, what is the unadjusted net income of Uganda Co. for the year ended
December 31, 2015?
2. At September 1, 2014, the following existed in the records of Los Angeles Company: Plant & equipment –
P8,600,000 and Accumulated depreciation – P3,970,000. During the year ended September 30, 2014, plant
with a written down value of P370,000 was sold P490,000. The plant had originally cost P800,000. Plant
purchased during the year cost P1,800,000. It is the company’s policy to charge a full year’s depreciation in
the year of acquisition of an asset and none in the year of sale, using a rate of 10% on the straight-line basis.
What net amount should appear in Los Angeles’s balance sheet at September 30, 2014 for plant &
equipment?
For questions 3 to 7, use the information below
Your audit of California Company disclosed that your client kept very limited records. Purchases of
merchandise were paid for by check, but most other items were out of cash receipts. The company’s collections
were deposited weekly. No record was kept of cash in the bank, nor was a record kept of sales. Accounts
receivable were recorded only by keeping a copy of the ticket, and this copy was given to the customer when he
paid his account. On January 2, 2014 the company started business and issued common stock, 108,000 shares
with P100 par, for the following considerations: Cash – P900,000; Building (useful life, 15 years) – P8,100,000;
and Land – P2,700,000.
An analysis of the bank statements showed total deposits, including the original cash investment, of
P6,300,000. The balance in the bank statement on December 31, 2014 was P450,000, but there were checks
amounting to P90,000 dated in December but not paid by the bank until January 2015. Cash on hand December
31, 2014 was P225,000 including customers’ deposit of P135,000. During the year California Company borrowed
P900,000 from the bank and repaid P225,000 and P45,000 interest.
Disbursements totaling P900,000 paid in cash during the year were as follows: Utilities – P180,000;
Salaries – P180,000; Supplies – P360,000 and Dividends – P270,000. An inventory of merchandise taken on
December 31, 2014 showed P1,359,000 of merchandise. Tickets for accounts receivable totaled P1,620,000 but
P90,000 of that amount may prove uncollectible. Unpaid suppliers invoices for merchandise amounted to
P630,000. Equipment with a cash price of P720,000 was purchased in early January on a one-year installment
basis. During the year, checks for the down payment and all maturing installments totaled P801,000. The
equipment has a useful life of 5 years.
3. Compute for the payments for merchandise purchases in 2014.
4. Compute for the collections from sales in 2014.
5. Compute for the net income for the year ended December 31, 2014.
6. Compute for the stockholders’ equity as of December 31, 2014.
7. Compute for the total assets as of December 31, 2014.
For question 8 & 9, use the information below
The condensed income statement of San Antonio, Inc. for the year ended December 31, 2015, is
presented the following information: Sales P1,000,000
Cost of goods sold 600,000
Gross profit P 400,000
Operating expenses 150,000
Net income P 250,000
The December 31, 2015, audit of the company’s financial statements disclosed the following errors:
 December 31, 2015 inventory was understated P31,000.
 Accrued expenses of P4,000 and prepaid expenses of P6,000 were not recognized in the company’s books.
 Sales of P5,000 were not recorded until January 2016, although the goods were shipped in December 2015,
and were excluded from the December 31 physical inventory.
 Purchases of P30,000 made in December 2015, were not recorded although the goods were received and
properly included in the December 31 physical inventory.
 A machine was sold for P10,000 on July 1, 2015, and the proceeds were credited to the Sales account. The
machine was acquired on January 1, 2012 for P60,000. At that time, it had an estimated life of 6 years with
no residual value. No depreciation was recorded on this machine in 2015.
8. What is the loss on sale of machine?
9. What is the corrected net income for the year ended December 31, 2015?
10. Connecticut Company reported an Accumulated Profits balance of P400,000 at December 31, 2013. In
August 2014, Connecticut determined that insurance premiums of P75,000 for the three-year period
beginning January 1, 2013, had been paid and fully expensed in 2013. Assume Connecticut has a 32%
income tax rate, what amount should Connecticut report as adjusted beginning Accumulated Profits in 2014?
11. The following information pertains to Sudan Company’s sales for the current year:
Cash sales:
 Gross P 2,000,000
Returns and allowances 100,000
Credit sales
Gross P 3,000,000
Discounts 150,000
On January 1, customers owed Sudan P1,000,000. On December 31, customers owed Sudan P750,000.
Sudan uses direct write-off method for bad debts. No bad debts were recorded in the current year. Under
the cash basis of accounting, what amount of revenue should Sudan report for the current year?
12. Congo Company has apprehensions of possible pilferage in its stock of merchandise at December 31, 2015.
The following data were available:
12/31/2014 12/31/2015
Physical inventory, at cost 600,000 1,000,000
Sales 4,000,000
Cost of sales 2,400,000
Accounts receivable-trade 1,200,000 1,350,000
Accounts payable –trade 1,500,000 1,850,000
In 2015, accounts written off amounted to P100,000. Sales returns were P150,000 and purchase returns,
P50,000. Cash receipts from customers after P200,000 discounts totaled P6,000,000 while cash payments to
trade creditors amounted to P4,000,000 after discounts of P300,000. Cash paid to customers for good
returned was P50,000. On this transaction, accounts receivable was debited. Under accrual basis, what
should be the gross purchases for the current year?
13. Tahiti Company owns an office building and leases the offices under a variety of rental agreement involving
rent paid in advance monthly or annually. Not all tenants make timely payments of their rent. Tahiti’s
balance sheet contained the following data:
2014 2015
Rentals receivable 960,000 1,240,000
Unearned rentals 3,200,000 2,400,000
During 2015, Tahiti received P8,000,000 cash from tenants. What amount of rental revenue should Tahiti
record for 2015?
For questions 14 & 15, use the information below:
Toronto Company is engaged in a small export business. The company maintains limited records. Most of
the company’s transactions are summarized in a cash journal: non-cash transactions are recorded by making
memo entries. The following are abstracted from the company’s records: Accounts receivable – 270,000
increase; Notes receivable – 200,000 decrease; Accounts payable – 150,000 decrease; Notes payable-trade –
200,000 increase; Notes payable – bank – 300,000 increase; Sales returns (P50,000 was refunded) – 80,000;
Sales discounts – 20,000; Purchase returns (P30,000 was refunded) – 80,000; Purchase discounts – 35,000;
Accounts written off – 60,000; Recovery of accounts written off – 18,000; Cash sales – 300,000; Cash
purchases – 250,000; Cash received from account customers – 1,500,000; Cash payment to trade creditors –
1,200,000.
14. What is the amount of gross sales?
15. What is the amount of gross purchases?
On January 1, 2016 because of the evidence acquired during the examination of 2015 financial statement of XXX
Corporation, the company decided to change the method of deprecating its equipment from straight-line to SYD
method with a decrease in salvage value of P50,000, and a change in remaining useful life to 5 years.
The equipment was acquired on April 1, 2014 at P2,500,000 and was estimated to have an useful life of 10 year
with a salvage value of P250,000. At the date of acquisition the company also incurred P15,000 for installation
and P20,000 for freight and insurance.
16. Compute for the book value of the assets as of December 31, 2015.
17. Compute for the depreciation expense for the year 2016.

Following were the information on 2015 inventory of YYY Corporation

Purchases Qty Unit Cost
1st Quarter 10,000 P 150.00
2nd Quarter 15,000 153.50
3rd Quarter 32,000 152.75
4th Quarter 8,000 154.00
In 2015, the company reported 43,000 units sold and which were accounted under FIFO.
18. If in 2016 the company changes its inventory method to weighted average, how much would be the
adjustment to retained earnings assuming ending inventory for 2016 were valued at P150,000 and P152,500
under FIFO and weighted average respectively?

The December 31, 2016 and 2015 comparative financial statements of World Gallery Company showed
equipment with an original cost P379,000 and P344,000 with accumulated depreciation of P153,000 and
P128,000, respective. During 2016, the company purchased equipment costing P50,000, and sold equipment
with a carrying value of P9,000.
19. What amount should the company report as depreciation expense for 2016?
The balance sheet of Davenport Sales, Inc. as of December 31, 2015 showed increases in the following account
balances: Assets – P267,000 increase; Liabilities – P81,000 increase; Capital stock – P180,000 increase and
Additional-paid-in capital – P18,000 increase. There were no changes in the retained earnings account except for
a dividend payment of P39,000.
20. What is the net income for the year 2015?