FAR 1 (1st Semester 2021)

COMPLETING THE ACCOUNTING CYCLE

EXERCISE PROBLEMS

Problem 1 Worksheet (Perpetual Inventory System)

a. Journal Entries
GJ-1
Date Account Titles Debit Credit
1 Merchandise Inventory P 600,000
Accounts Payable P 600,000

2 Accounts Receivable 1,600,000

Sales 1,600,000

Cost of goods sold 560,000

Merchandise Inventory 560,000

3 Cash 1,490,000
Accounts Receivable 1,490,000

4 Accounts Payable 490,000

Cash 490,000

5 Salaries expense 820,000

Cash 820,000

6 Utilities expense 64,000

Cash 64,000
b. Posting to Ledger
GENERAL LEDGER
ASSETS
CASH No. 101
Date Ref. Debit Credit Balance
Beg. Bal. 280,000
3 GJ-1 1,490,000 1,770,000
4 GJ-1 490,000 1,280,000
5 GJ-1 820,000 460,000
6 GJ-1 64,000 396,000
ACCOUNTS RECEIVABLE No. 103
Date Ref. Debit Credit Balance
Beg. Bal. 60,000
2 GJ-1 1,600,000 1,660,000
3 GJ-1 1,490,000 170,000
INVENTORY No. 109
Date Ref. Debit Credit Balance
Beg. Bal. 140,000
1 GJ-1 600,000 740,000
2 GJ-1 560,000 180,000
EQUIPMENT No. 123
Date Ref. Debit Credit Balance
Beg. Bal. 300,000
ACCUMULATED DEPRECIATION No. 123A
Date Ref. Debit Credit Balance
Beg. Bal. 180,000
 LIABILITIES
ACCOUNTS PAYABLE No. 201
Date Ref. Debit Credit Balance
Beg. Bal. 50,000
1 GJ-1 600,000 650,000
4 GJ-1 490,000 160,000
EQUITY
OWNER’S CAPITAL No. 301
Date Ref. Debit Credit Balance
Beg. Bal. 550,000
INCOME
SALES No. 401
Date Ref. Debit Credit Balance
Beg. Bal. 0
2 GJ-1 1,600,000 1,600,000
EXPENSES
COST OF GOODS SOLD
Date Ref. Debit Credit Balance
Beg. Bal. 0
2 GJ-1 560,000 560,000
SALARIES EXPENSE No. 601
Date Ref. Debit Credit Balance
Beg. Bal. 0
5 GJ-1 820,000 820,000
UTILITIES EXPENSE No. 644
Date Ref. Debit Credit Balance
Beg. Bal. 0
6 GJ-1 64,000 64,000

c. Unadjusted Trial Balance

George Laku
Unadjusted Trial Balance
December 31, 20x1

Accounts Debit Credit

Cash P 396,000
Accounts Receivable 170,000
Inventory 180,000
Equipment 300,000
Accumulated depreciation P 180,000
Accounts Payable 160,000
Owner’s Capital 550,000
Sales 1,600,000
Cost of goods sold 560,000
Salaries expense 820,000
Utilities expense 64,000
Totals P 2,490,000 P 2,490,000

d. Adjusting Entries
 Date Account Titles and Explanations Debit Credit
Dec. 31, 20x1 Depression expense P 30,000
(AJE 1) Accumulated depreciation P 30,000
To record depreciation expense for the period.

Dec. 31, 20x1 Bad debts expense 3,000

(AJE 2) Allowance for bad debts 3,000
To record bad debts expense for the period.

Dec. 31, 20x1 Cost of goods sold 10,000

(AJE 3) Inventory 10,000
To record shortage on the merchandise inventory.
Computations:
180,000 – 170,000 = 10,000

f. Closing Entries
Closing entry #1: Income summary
Date Account Titles and Explanations Debit Credit
Dec. 31, 20x1 Sales 1,600,000
(Cl.E 1) Cost of goods sold 570,000
Salaries expense 820,000
Utilities expense 64,000
Depreciation expense 30,000
Bad debts expense 3,000
Income summary (‘squeeze’) 113,000
To close income and expense accounts to income
summary.

Closing entry #2: Income summary closed to equity

Date Account Titles and Explanations Debit Credit
Dec. 31, 20x1 Income summary 113,000
(Cl.E 2) Owner’s Capital 113,000
To close the income summary to equity.

g. Balance Sheet and Income Statement

George Laku
Balance Sheet
As of December 31, 20x1
ASSETS
Cash P 396,000
Accounts Receivable 170,000
Allowance for bad debts (3,000)
Inventory 170,000
Equipment 300,000
Accumulated depreciation (210,000)
TOTAL ASSETS P 823,000

LIABILITIES
Accounts Payable P 160,000

EQUITY
Owner’s Capital 663,000

TOTAL LIABILITIES & EQUITY P 823,000

 George Laku
Income Statement
For the year ended December 31, 20x1
Sales P 1,600,000
Cost of goods sold (570,000)
GROSS PROFIT 1,030,000

Salaries expense (820,000)

Utilities expense (64,000)
Depreciation expense (30,000)
Bad debts expense (3,000)

PROFIT P 113,000

Problem 2 Worksheet (Periodic Inventory System)

a. Journal Entries
GJ-1
Date Account Titles Debit Credit
1 Purchases P 600,000
Accounts Payable P 600,000
To record the purchase of inventories on account.

2 Accounts Receivable 1,600,000

Sales 1,600,000
To record the sale of inventories on account.

3 Cash 1,490,000
Accounts Receivable 1,490,000
To record the collection of accounts receivable.

4 Accounts Payable 490,000

Cash 490,000
To record the payment of accounts payable.

5 Salaries expense 820,000

Cash 820,000
To record the payment of salaries expense.

6 Utilities expense 64,000

Cash 64,000
To record the payment of utilities expense.

b. Posting to Ledger
GENERAL LEDGER
ASSETS
CASH No. 101
Date Ref. Debit Credit Balance
Beg. Bal. 280,000
3 GJ-1 1,490,000 1,770,000
4 GJ-1 490,000 1,280,000
5 GJ-1 820,000 460,000
6 GJ-1 64,000 396,000
ACCOUNTS RECEIVABLE No. 103
Date Ref. Debit Credit Balance
Beg. Bal. 60,000
2 GJ-1 1,600,000 1,660,000
3 GJ-1 1,490,000 170,000
INVENTORY No. 109
Date Ref. Debit Credit Balance
Beg. Bal. 140,000
EQUIPMENT No. 123
Date Ref. Debit Credit Balance
Beg. Bal. 300,000
ACCUMULATED DEPRECIATION No. 123A
Date Ref. Debit Credit Balance
Beg. Bal. 180,000

LIABILITIES
 ACCOUNTS PAYABLE No. 201
Date Ref. Debit Credit Balance
Beg. Bal. 50,000
1 GJ-1 600,000 650,000
4 GJ-1 490,000 160,000

EQUITY
OWNER’S CAPITAL No. 301
Date Ref. Debit Credit Balance
Beg. Bal. 550,000
INCOME
SALES No. 401
Date Ref. Debit Credit Balance
Beg. Bal. 0
2 GJ-1 1,600,000 1,600,000
PURCHASES No. 501
Date Ref. Debit Credit Balance
Beg. Bal. 0
1 GJ-1 600,000 600,000
EXPENSES
SALARIES EXPENSE No. 601
Date Ref. Debit Credit Balance
Beg. Bal. 0
5 GJ-1 820,000 820,000
UTILITIES EXPENSE No. 644
Date Ref. Debit Credit Balance
Beg. Bal. 0
6 GJ-1 64,000 64,000

c. Unadjusted Trial Balance

George Benta
Unadjusted Trial Balance
December 31, 20x1

Accounts Debit Credit

Cash P 396,000
Accounts Receivable 170,000
Inventory 140,000
Equipment 300,000
Accumulated depreciation P 180,000
Accounts Payable 160,000
Owner’s Capital 550,000
Sales 1,600,000
Purchases 600,000
Salaries expense 820,000
Utilities expense 64,000
Totals P 2,490,000 P 2,490,000

d. Adjusting Entries
 Date Account Titles and Explanations Debit Credit
Dec. 31, 20x1 Depression expense P 30,000
(AJE 1) Accumulated depreciation P 30,000
To record depreciation expense for the period.

Dec. 31, 20x1 Bad debts expense 3,000

(AJE 2) Allowance for bad debts 3,000
To record bad debts expense for the period.

Dec. 31, 20x1 Inventory, end. 170,000

(AJE 3) Income summary 170,000
To record the ending inventory per physical count.

Cost of goods sold analysis:

Formula: Beginning inventory 140,000
Purchases 600,000
Total goods available for sale 740,000
Ending inventory (170,000)
Cost of goods sold 570,000

f. Closing Entries
Closing entry #1: Beginning inventory
Date Account Titles and Explanations Debit Credit
Dec. 31, 20x1 Income summary 140,000
(Cl.E 1) Inventory, beg. 140,000
To close beginning inventory to income summary.

Closing entry #2: Income summary

Date Account Titles and Explanations Debit Credit
Dec. 31, 20x1 Sales 1,600,000
(Cl.E 2) Purchases 600,000
Salaries expense 820,000
Utilities expense 64,000
Depreciation expense 30,000
Bad debts expense 3,000
Income summary (‘squeeze’) 83,000
To close income and expense accounts to income
summary.

Closing entry #3: Income summary closed to equity

INCOME SUMMARY
Date Ref. Debit Credit Balance
Bal. Fwd. 0
Dec. 31, 20x1 AJE 3 170,000 170,000
Cl.E 1 140,000 30,000
Cl.E 2 83,000 113,000

Date Account Titles and Explanations Debit Credit

Dec. 31, 20x1 Income summary 113,000
(Cl.E 3) Owner’s Capital 113,000
To close the income summary to equity.
g. Balance Sheet and Income Statement
George Benta
Balance Sheet
As of December 31, 20x1
ASSETS
Cash P 396,000
Accounts Receivable 170,000
Inventory 170,000
Equipment 300,000
Accumulated depreciation (210,000)
Allowance for bad debts (3,000)
TOTAL ASSETS P 823,000

LIABILITIES
Accounts Payable P 160,000

EQUITY
Owner’s Capital 663,000

TOTAL LIABILITIES & EQUITY P 823,000

George Benta
Income Statement
For the year ended December 31, 20x1
Sales P 1,600,000
Cost of goods sold:
Inventory, beg. P 140,000
Purchases 600,000
Total goods available for sale 740,000
Inventory, end. (170,000) (570,000)
GROSS PROFIT 1,030,000
Salaries expense (820,000)
Utilities expense (64,000)
Depreciation expense (30,000)
Bad debts expense ( 3,000)
PROFIT FOR THE YEAR P 113,000