The following are selected account balance taken from the trial balance of Loyola Company as

of Dec 31, 2018:

Accounts Receivable 160,000
Allowance for Doubtful Accounts 2,550
Sales 1,250,000
Sales and Returns and Allowances 15,000
Sales Discount 24,000

1.) Adjusting Entry

a. It is the policy of company to provide 5% of net credit sales as uncollectible accounts.
Date Particulars Debit Credit
2018
Dec. 31 Doubtful Account Expense 48,050
Allowance for Doubtful Accounts 48,050
1,250,000 x 80% - 15,000 - 24,000 x 5%

b. The allowance should be increased by 5% of accounts receivable

Date Particulars Debit Credit

2018
Dec. 31 Doubtful Account Expense 8,000
Allowance for Doubtful Accounts 8,000
160,000 x 5%

c. The allowance should be increased to 5% of the outstanding accounts receivable

Date Particulars Debit Credit
2018
Dec. 31 Doubtful Account Expense 5,450
Allowance for Doubtful Accounts 5,450
Required Allowance: 160,000 x 5% = 8,000
Less: Beginning Balance 2,550
Adjustment 500

2.) Net realizable value

A B B
Accounts Receivable 160,000 160,000 160,000
Less: Allowance for Doubtful Accounts 48,050 8,000 5,750
Net Realizable Value 111,950 152,000 154,250
 Problem 2 req 1, b
Gardenia Breads (wholesaler) has credit sales of P1,260,000 and an allowance for doubtful
accounts unadjusted of P45,000. As at December 31, 2018, a review of the accounts showed:

Accounts Age Doubtful (%) Required Allowance

P750,000 Not yet due 1% 7,500
200,000 1-30 past due 2% 4,000
220,000 31-60 days past due 5% 11,000
60,000 61-90 days past due 30% 18,000
30,000 Over 90 days 50% 15,000
1,260,000 55,500

Required Allowance: 55,500

Less Allowance, beginning: 15,000
Bad Debts for the period: 40,500

Net Realizable Value (1,260,000 – 55,500) = 1,204,500

ENTRY:

Date Particulars Debit Credit

2018
Dec. 31 Bad Debts Expense 40,500
Allowance for Doubtful Accounts 40,500
 Problem 3 req a
Permacolor, a kodak photo store, acquired the following assets:
1.)
Date Particulars Debit Credit
2018
June 30 Office Equipment 450,000
Cash on Hand 450,000

Dec. 31 Depreciation Expense, Office Equipment 62,500

Accumulated Depreciation, Office Equipment 62,500
Depreciation = Cost – Salvage Value
Useful Life
= 450,000 – 75,000
6 years

BALANCE SHEET PRESENTATION

2018 2019
Office Equipment 450,000 450,000
Less: Accumulated Depreciation 31,250 62,500
Net Book Value 418,750 387,500

INCOME STATEMENT PRESENTATION

2018 2019
Depreciation Expense 31,250 31,250

2.)
Date Particulars Debit Credit
2018
June 30 Furniture and Fixtures 125,000
Cash on Hand 125,000

Dec. 31 Depreciation Expense, Furniture and Fixtures 12,500

Accumulated Depreciation, Furniture and Fixtures 12,500
Depreciation = Cost – Salvage Value
Useful Life
= 125,000
10 years
BALANCE SHEET PRESENTATION
2018 2019
Office Equipment 125,000 125,000
Less: Accumulated Depreciation 6,250 12,500
Net Book Value 118,750 112,500

INCOME STATEMENT PRESENTATION

2018 2019
Depreciation Expense 6,250 6,250

3.)
Date Particulars Debit Credit
2018
June 30 Car 350,000
Cash on Hand 350,000

Dec. 31 Depreciation Expense, Car 36,667

Accumulated Depreciation, Furniture and Fixtures 36,667
Depreciation = Cost – Salvage Value
Useful Life
= 350,000 – 150,000 x 11/12
10 years

BALANCE SHEET PRESENTATION

2018 2019
Office Equipment 350,000 350,000
Less: Accumulated Depreciation 16,667 36,667
Net Book Value 333,334 333,334

INCOME STATEMENT PRESENTATION

2018 2019
Depreciation Expense 16,667 16,667
 Problem 4 req a
Issued to BDO for a bank loan an 18% thirty-day note for P36,500 dated December 21, 2017:

Date Particulars Debit Credit

2017
Dec. 31 Interest Payable 365
Interest Expense 365
36,500 x 18% x 20/360

Prob 5 req A 1 & 2 only

Date Particulars Debit Credit
2017
Aug. 1 Prepaid Insurance 1,125
Cash on Hand 1,125
8,000 / 5

Oct. 31 Advertising Expense 18,000

Cash on Hand 18,000

Prepaid Advertising 15,240

Advertising Expense 15,240

Problem 6 Adjusting entries only