Exercise 5 - Completing The Accounting Cycle For Merchandising and Service Business

Exercise 5 – Completing the Accounting Cycle for Merchandising and Service Business
Problem 1
The following accounts and balances are available for Marie Sarmiento:
Accounts Payable 63,500

Accounts Receivable 198,000
Accumulated Depreciation – Building 110,000
Accumulated Depreciation – Office Equipment 120,000
Auditing Fees 1,361,500
Building 750,000
Cash 118,500
Depreciation Expense – Building 55,000
Depreciation Expense – Office Equipment 60,000
Sarmiento, Capital 1/1/20 1,193,500
Sarmiento, Withdrawals 165,000
Land 75,000
Notes Receivable 60,000
Office Equipment 362,500
Office Supplies Expense 96,000
Office Supplies 28,000
Professional Development Expense 86,500
Rent Expense 52,500
Salaries Expense 735,000
Salaries Payable 30,500
Travel Expense 41,000
Utilities Expense 18,000
During the year, Sarmiento invested P22,000 in the business.
Required:
Prepare financial statements of the sole proprietorship as of December 31, 2020:
1. Statement of comprehensive income/income statement

2. Statement of changes in equity
3. Statement of financial position/balance sheet
Problem 2
Lorna Business Solutions had a profit of P330,000 in 2020. During the year, the entity had depreciation
expense of P70,000. Accounts Receivable increased by P110,000 and Accounts Payable increased by
P50,000. The entity started operations in 2020 and the foregoing are the entity’s only current assets and
current liabilities.
Required:
Determine the net cash flow from operating activities under indirect method.
Problem 3
The following transactions pertain to the operations of Party Consultants, an event planning company
owned by Magdalina Solis. The entity had the following transactions during the month:
1. Received a P180,000 cash investment from the owner.

2. Provided P400,000 services on account.
3. Incurred P220,000 operating expenses on account.
4. Collected P320,000 cash from accounts receivable.
5. Allowed a P30,000 cash withdrawal to the owner of the business.
6. Paid P160,000 cash on accounts payable.
7. Performed services for cash, P30,000.
8. Paid P12,000 cash for rent.
Required:
1. Prepare journal entries to record the transactions.

2. Prepare a T-account for Cash.
3. Prepare statement of cash flows.
Problem 4
Listed below are the accounts taken from the December 31, 2020 adjusted trial balance of Arzadon
Printing Press:
Accounts Receivable 260,000

Supplies Expense 710,000
Salaries Expense 2,270,000
Printing Revenues 8,130,000
Prepaid Insurance 320,000
Depreciation Expense 250,000
Supplies 160,000
Salaries Payable 310,000
Printing Equipment 5,520,000
Prepaid Advertising 70,000
Arzadon, Withdrawals 1,500,000
Interest Payable 20,000
Cash 160,000
Repairs Expense 10,000
Accounts Payable 190,000
Telephone Expense 20,000
Utilities Expense 80,000
Unearned Printing Revenues 210,000
Interest Expense 300,000
Arzadon, Capital 340,000
Notes Payable 2,500,000
Miscellaneous Expense 90,000
Required:
1. Prepare an income statement

2. Prepare closing entries
Problem 5
Some of the adjusting entries of Blanche Company on December 31, 2020:

12/31/2020 Prepaid Insurance 25,000.00
Insurance Expense 25,000.00
To record unexpired insurance at year-end.
12/31/2020 Interest Receivable 17,000.00

Interest Income 17,000.00
To record accrued interest at year-end.
12/31/2020 Offi ce Supplies Expense 50,000.00

Offi ce Supplies 50,000.00
To record offi ce supplies used during the period.
12/31/2020 Depreciation Expense 125,000.00

Accumulated Depreciation 125,000.00
To record depreciation for the year.
12/31/2020 Salaries Expense 35,000.00

Salaries Payable 35,000.00
To record salaries accrued at year-end.
12/31/2020 Rent Revenues 80,000.00

Unearned Rent Revenues 80,000.00
To record liability of unearned rent revenue at year-end.
Required:
Prepare the reversing entries.
Problem 6
The transactions for the year for Junior Architects have been recorded in the accounting system:
1. Service provided to a customer for P45,000 has not been recorded.

2. The note payable of P50,000 has been outstanding since September 1. Under the terms of the
note, the note plus interest (10%) is to be paid on September 1 next year. No interest has been
recorded on the note.
3. Employee wages of P50,000 for December will be paid in January.
4. Advertising cost of P15,000 for December has not been recorded.
Required:
Prepare adjusting entries for each of the items above.
Problem 7
Below is the alphabetical list of accounts of Master Cleaners as of December 31, after all adjusting
entries have been posted.
Accounts payable 2,700

Accumulated depreciation – equipment 2,800
Cash 2,600
Depreciation expense – equipment 700
Godrich, Capital 6,200
Godrich, Drawing 7,000
Equipment 12,300
Income from services 29,800
Insurance expense 1,600
Miscellaneous expense 300
Prepaid insurance 200
Rent expense 2,400
Advertising expense 900
Utilities expense 800
Wages expense 3,700
Required:
1. Prepare closing entries

2. Prepare post-closing trial balance

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Exercise 5 – Completing the Accounting Cycle for Merchandising and Service Business

Accounts Payable 63,500

During the year, Sarmiento invested P22,000 in the business.

Prepare financial statements of the sole proprietorship as of December 31, 2020:

1. Statement of comprehensive income/income statement

1. Received a P180,000 cash investment from the owner.

1. Prepare journal entries to record the transactions.

Accounts Receivable 260,000

1. Prepare an income statement

Some of the adjusting entries of Blanche Company on December 31, 2020:

12/31/2020 Interest Receivable 17,000.00

12/31/2020 Offi ce Supplies Expense 50,000.00

12/31/2020 Depreciation Expense 125,000.00

12/31/2020 Salaries Expense 35,000.00

12/31/2020 Rent Revenues 80,000.00

Prepare the reversing entries.

1. Service provided to a customer for P45,000 has not been recorded.

Prepare adjusting entries for each of the items above.

Accounts payable 2,700

1. Prepare closing entries

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