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1. Akonalang Enterprise purchased a machine on January 3, 20x1. The machine cost P46,000 with an estimated salvage value of P2,000 and
an estimated useful life of 10 years. As a result of technological improvements, a revision of the machine’s useful life and estimated
residual value was made. On January 1, 20x4, the equipment was to last through 20X5 with an estimated value at that time of P500.
Akonalang uses the straight line method for depreciation.
Required: prepared the journal entry to record depreciation on December 31, 20X4
2. Camelot Co. began operations on January 1, 20x1, at which time it acquired depreciable assets of P100,000. The assets have an estimated
useful life of ten years and no residual value.
In 20x4, Camelot Co. changed from the sum-of-the years-digits depreciation method to the straight-line depreciation method. In 20x4,
Camelot co. had income from continuing operations of P670,000, before depreciation.
3. Imperfect Technologies has estimated bad debts using the percentage-of0sakes method since their business began operations in 20X1.
Information relating to bad debts and sales is as follows:
Year Sales Estimated bad debt expense Actual bad debts
(% of sales)
20X1 87,000 2,610 1,200
20X2 123,000 3,690 2,850
20X3 147,000 4,410 3,222
At the beginning of 20X4, Perfect proposes changing their estimation of bad debt expense form 3 percent to sales to 2 percent. Sales for
the year totaled P163,000 and actual bad debts amounted to P3,720.
Required: Prepare the journal entry to record bad debt expense at the beginning of 20X4.
Determine the balance in “Allowance for Bad Debts: on December 31, 20X4
4. On January 1, 20x2, Blah Corporation changed its method of accounting for bad debts from the direct write-off method to the allowance
method. The company’s controller determined that an allowance of P22,000 should be established on that date.
Required: Prepare the journal entry required to adjust the accounts.
5. On January 1, 29x2m Hamlet Corporation changed its inventory cost flow assumption from Average Method to FIFO Method. Hamlet’s
inventory values at the end of each year since the inception under both methods are summarized below:
Year FIFO Average
1998 200,000 180,000
1999 250,000 226,000
20X0 310,000 283,000
20X1 400,000 360,000
Ignore income tax considerations. What is the amount of adjustment required in the 20X2 accounts, and where would it be reported in
the financial statements?
Prepare the journal entry required to adjust the accounts.
The beginning balance of retained earnings (Jan. 1, 20x2) shall be increased by ₱40,000 (400,000 – 360,000).
6. In reviewing the books of Meyers Retailers, Inc., the auditor discovered certain errors that had occurred during 20x1 and 20x2. No errors
were corrected during 20x1. The errors are summarized below:
a. Beginning merchandise inventory (January 1, 20x1) was understated by P8,640.
b. Merchandise coting P2,400 was sold for P4,000 to B. Taylor on December 29, 1999, the same was recorded in 20X2. The
merchandise was shipped FOB shipping point and was not included in the ending inventory. Meyers uses a periodic inventory
system.
c. A two-year fire insurance policy was purchased on May 1, 20x1, for P5,760. The entire amount was debited to Prepaid
Insurance. No adjusting entry was made on December 20X1, and 20X2.
d. A one-year note receivable of P9,600 was held by Meyers beginning October 1,20X1. Payment of the 10 percent note and
accrued interest was received upon maturity. No adjusting entry was made on December 31, 20X1.
e. Equipment with a ten-year life was purchased on January 1, 20x1 for P39,200. No depreciation expense was recorded during
20X1 or 20X2. Assume that the equipment has no residual value and that Meyers uses straight-line method for recording
depreciation.
(a)
No journal entry is required. The error has already counterbalanced.
(b)
Sales ....................................... 4,000
Retained Earnings ......................... 4,000
(c)
Insurance Expense ........................... 2,880
Retained Earnings ........................... 1,920
Prepaid Insurance ......................... 4,800
(d)
Interest Revenue ............................ 240
Retained Earnings ......................... 240
(e)
Depreciation Expense ....................... 3,920
Retained Earnings .......................... 3,920
Accumulated Depreciation--Equipment ...... 7,840
7. Since it organization on January 1, 20x0, Langley Inc. failed to properly recognized accruals and prepayments. Selected accounts revealed
the following information:
20x0 20x1 20x2
Accrued expenses 2,900 3,000 3,400
Prepaid expenses 2,000 2,800 1,500
Accrued revenue 2,750 2,500 2,700
Unearned revenue 4,250 4,500 4,100
Requirement: Compute the corrected net income for the years 20X0, 20X1 and 20X2 (ignore income taxes)
Requirement (a):
Accounts/Trade notes receivable
beg. (0 + 240K) 240,000
Credit sales - gross 4,452,000 1,200,000 Collections on A/R
Recoveries 12,000 2,400,000 Collections on trade N/R
120,000 Write-offs
24,000 Sales returns
960,000 end. (960K + 0)
Requirement (b):
Collections on A/R 1,200,000
Collections on trade N/R 2,400,000
Net sales - cash basis 3,600,000
Accounts payable
- beg.
COGS - cash basis 3,000,000 4,200,000 Net purchases (squeeze)
end. 1,200,000
Inventory
beg. 300,000
Net purchases 4,200,000 4,500,000 COGS - accrual basis
- end.
Liabilities
Accounts payable 65,000 75,000
Deferred Liability 100,000 20,000
Net assets 1,505,000 1,685,000
Additional information:
There are no acquisition or disposal of property, plant and equipment during the year
The entity’s profit under the cash basis of accounting is P1,000,000
Requirements: Compute for the profit under the accrual basis of accounting