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InterAcc 14-33

Evelyn Company recorded transactions on a cash basis but made adjustments at year-end to comply with accrual accounting. The document provides account balances, additional information, and requirements to prepare adjusting entries, an income statement, and statement of financial position for the year ended December 31, 2021. Key adjustments include recognizing accrued rent, prepaid insurance, depreciation expense, and inventory. The income statement shows sales of P2,040,000 and net income of P100,000. The statement of financial position lists total assets of P2,087,000 including inventory of P230,000 and retained earnings of P447,000.

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Marinella Losa
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3K views11 pages

InterAcc 14-33

Evelyn Company recorded transactions on a cash basis but made adjustments at year-end to comply with accrual accounting. The document provides account balances, additional information, and requirements to prepare adjusting entries, an income statement, and statement of financial position for the year ended December 31, 2021. Key adjustments include recognizing accrued rent, prepaid insurance, depreciation expense, and inventory. The income statement shows sales of P2,040,000 and net income of P100,000. The statement of financial position lists total assets of P2,087,000 including inventory of P230,000 and retained earnings of P447,000.

Uploaded by

Marinella Losa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Problem 14-33

Evelyn Company recorded transactions on a cash basis but prepared


adjustments at the end of accounting period to conform with accrual basis.
The entity provided the following account balances for the year ended
December 31, 2021:

Cash 200,000
Accounts receivable 250,000
Inventory 150,000
Land 300,000
Building 1,000,000
Accumulated depreciation 200,000
Equipment 400,000
Accumulated depreciation 40,000
Accounts payable 100,000
Share capital 1,500,000
Retained earnings 345,000
Sales 2,000,000
Purchases 1,200,000
Office expenses 255,000
Rent 240,000
Insurance 50,000
Supplies expense 140,000
Additional information

1.Inventory on December 31, 2021 amounted to P230,000


2.Accounts receivable
December 31, 2021 290,000
December 31, 2020 250,000
3.It is estimated that P15,000 of the outstanding accounts receivable on
December 31, 2021 may prove uncollectible.
4. Depreciation rate
Building 5%
Equipment 10%
5.Accounts payable
December 31, 2021 130,000
December 31, 2020 100,000
6.Accrued rent on December 31, 2020 was unrecorded in the
amount of P5,000.
7.Accrued rent on December 31, 2021 amounted to P10,000.
8.Prepaid insurance on December 31, 2020 in the amount of
P7,000 was not recognized.
9.Prepaid insurance on December 31, 2021 amounted to P12,000.

Required:

a. Prepare adjusting entries on December 31, 2021


b.Prepare an income statement for 2021
c.Prepare a statement of financial position on December 31,
2021
1.Inventory – December 31, 2021 230,000
Income summary 230,000
2.Accounts receivable 40,000
Sales 40,000
3.Doubtful accounts 15,000
Allowance for doubtful accounts 15,000
4.Depreciation 90,000
Accumulated depreciation – building 50,000
Accumulaled depreciation – equipment 40,000
5.Purchases 30,000
Accounts payable 30,000
6.Retained earnings 5,000
Rent 5,000
7.Rent 10,000
Accrued rent payable 10,000
8.Insurance 7,000
Retained earnings 7,000
9.Prepaid insurance 12,000
Insurance 12,000
Computation of Sales
Sales per book 2,000,000
Add: Accounts Receivable, end. 290,000
Total 2,290,000
Less: Accounts Receivable, beg. 250,000
Sales 2,040,000

Computation of Purchases
Purchases per book 1,200,000
Add: Accounts Payable, end. 130,000
Total 1,330,000
Less: Accounts Payable, beg. 100,000
Purchases 1,230,000
Computation of COGS
Purchases 1,230,000
Add: Inventory beg. 150,000
Total 1,380,000
Less: Inventory, end. 230,000
Cost of Good Sold 1,150,000
Computation of Retained earnings

Retained earnings per book 345,000


Unrecorded accrued rent – December 31, 2020 (5,000)
Unrecorded prepaid insurance – December 31, 2020 7,000
Corrected Retained Earnings 347,000
Evelyn Company
Income statement
Year ended December 31, 2021
Sales P2,040,000
Cost of sales:
Inventory – January 1 P150,000
Purchases 1,230,000
Goods available for sale 1,380,000
Less: inventory – December 31 (230,000) (1,150,000)
Gross income 890,000
Expenses:
Office expenses 255,000
Rent 245,000
Insurance 45,000
Supplies 140,000
Doubtful accounts 15,000
Depreciation 90,000 790,000
Net income 100,000
Evelyn Company
Statement of Financial Position
December 31, 2021
Assets
Current assets:
Cash P200,000
Accounts receivable, net allowance 275,000
Inventory 230,000
Prepaid insurance 12,000 P717,000
Noncurrent assets:
Land 300,000
Building 1,000,000
Less: Accumulated depreciation (250,000) 750,000
Equipment 400,000
Less: Accumulated depreciation (80,000) 320,000 1,370,000
Total Assets P2,087,000
Liabilities and Equity

Current liabilities:

Accounts payable 130,000


Accrued rent payable 10,000 140,000

Equity:

Share capital 1,500,000


Retained earnings (note 1) 447,000 1,947,000
Total liabilities and equity P2,087,000

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