Cash and Accrual Quizzer

Problem 1:
Zamboanga Enterprises records all transactions on the cash basis. The company’s accountant
prepared the following income statement at the end of the company’s first year of operations:
Zamboanga Enterprises
Income Statement
For the Year Ended December 31, 2006
Sales P2,016,000
Selling and administrative expenses:
Salaries expense P624,000
Rent expense 360,000
Utilities expense 232,000
Equipment 240,000
Commission expense 302,400
Insurance expense 48,000
Interest expense 24,000 1,830,400
Net income P 185,600
You have been asked to prepare an income statement on the accrual basis. the following
information is given to you to assist in the preparation:
(a) Amounts due from customers at year-end were P224,000. Of this amount, P24,000 will
probably not be collected.
(b) Salaries of P88,000 for December 2006 were paid on January 5, 2007.
(c) Zamboanga rents its building for P24,000 a month, payable quarterly in advance. The
contract was signed on January 1, 2006.
(d) The bill for December’s utility costs of P21,600 was paid January 10, 2007.
(e) Equipment of P240,000 was purchased on January 1, 2006. The expected life is 5
years, no salvage value. Assume straight-line depreciation.
(f) Commissions of 15% of sales are paid on the same day cash is received from
customers.
(g) A 1-year insurance policy was issued in company assets on July 1, 2006. Premiums are
paid annually in advance.
(h) Zamboanga barrowed P400,000 for one year on May 1, 2006. Interest payments based
on an annual rate of 12% are made quarterly, beginning with the first payment on
August 1, 2006.
QUESTION:
How much is the net income before income tax under the accrual basis of accounting?
Part 2: You were able to gather the following in connection with your audit of the Bukidnon
Company for the year ended December 31, 2006:
1/1/2006 12/31/2006
Accounts receivable P6,400,000 P4,000,000
Unpaid merchandise invoices ? 2,621,000
Accrued wages 85,000 125,000
Advertising supplies inventory 35,000 75,000
Accrued advertising 14,250 40,000
Prepaid insurance 25,000 -
Unexpired insurance - 41,000
During the year:
Amount collected from customers P10,000,000

Total payments to suppliers of merchandise 13,618,000
Total payments to suppliers of merchandise of
prior years 4,632,000
Wages paid 3,050,000
Advertising paid which includes P40,000
applicable in 2006 300,000
Insurance premium paid 125,000
QUESTIONS:
Based on the above and the result of your audit, determine the following:
1. Net sales for 2006
a. P 6,400,000 c. P 7,600,000
b. P12,400,000 d. P14,000,000
2. Net purchases for 2006
a. P11,607,000 c. P13,618,000
b. P15,629,000 d. P16,239,000
3. Wages expense for 2006

a. P3,010,000 c. P3,050,000
b. P3,090,000 d. P3,100,000
4. Advertising expense for 2006
a. P245,750 c. P260,000
b. P285,750 d. P300,000
5. Insurance expense for 2006
a. P 84,000 c. P100,000
b. P109,000 d. P141,000
Part 3:
Your audit of Camiguin 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, 2006 started business and issued common stock, 108,000 shares with P100 par,
for the following considerations:
Cash P 900,000
Building (useful life, 15 years) 8,100,000
Land 2,700,000
P11,700,000
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, 2006, was
P450,000, but there were checks amounting to P90,000 dated in December but not paid by
the bank until January 2007. Cash on hand on December 31, 2006 was P225,000 including
customers’ deposit of P135,000.
During the year, Camiguin Company borrowed P900,000 from the bank and repaid P225,000
and P45,000 interest.
Disbursements paid in cash during the year were as follows:
Utilities P180,000
Salaries 180,000
Supplies 360,000
Dividends 270,000
P990,000
An inventory of merchandise taken on December 31, 2006 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.
QUESTIONS:
Based on the above and the result of your audit, determine the following: (Disregard income
taxes)
1. Payments for merchandise purchases in 2006
a. P4,869,000 c. P3,654,000
b. P3,879,000 d. P3,969,000
2. Collections from sales in 2006
a. P6,480,000 c. P5,580,000
b. P7,380,000 d. P4,500,000
3. Net income for the year ended December 31, 2006
a. P2,430,000 c. P2,655,000
b. P1,440,000 d. P2,340,000
4. Stockholders’ equity as of December 31, 2006
a. P13,860,000 c. P14,085,000
b. P12,870,000 d. P13,770,000
5. Total assets as of December 31, 2006
a. P14,175,000 c. P14,374,800
b. P14,085,000 d. P14,310,000

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Problem 1:

During the year:

Amount collected from customers P10,000,000

1. Net sales for 2006

2. Net purchases for 2006

3. Wages expense for 2006

4. Advertising expense for 2006

5. Insurance expense for 2006

Disbursements paid in cash during the year were as follows:

An inventory of merchandise taken on December 31, 2006 showed P1,359,000 of

Unpaid suppliers invoices for merchandise amounted to P630,000.

1. Payments for merchandise purchases in 2006

2. Collections from sales in 2006

3. Net income for the year ended December 31, 2006

4. Stockholders’ equity as of December 31, 2006

5. Total assets as of December 31, 2006

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