DETERMINE THE EFFECT OF THE FOLLOWING TRANSACTIONS ON THE ACCOUNTING ELEMENTS OF ASSE

CAPITAL, WITHDRAWAL, REVENUE, AND EXPENSES.

Date Transactions

Jun 2 Cruz opened a repair shop business by investing cash of P200,000. + Asset
+
3 Paid P2,500 for monthly rent. Expense

4 Purchased equipment on account from AVENSON, P25,000. + Asset

7 Rendered repair services for cash, P7,000. + Asset

10 Purchased repair supplies on account from Aze Hardware, P2,000. + Asset

12 Returned defective supplies because of defect, P500. -Asset

Hired an assistant for a monthly salary of P5,000. The assistant will start
13 reporting for duty on June 15,2012.
Rendered repair services on account: Bartolome - P3,000; Stefano -
15 P5,000; and Mateo, P2,000. + Asset
Paid in full the account with Aze Hardware and paid P12,500 of the
18 AVENSON account. - Liabilitie

22 Collected customers' account: Bartolome - P3,000; and Stefano - P2,500. +Asset

28 Cruz withdrew cash for personal use, P3,000. + Withdra

30 Received and paid MERALCO bill, P2,800. + Expense

30 Paid the assistant's salary, P2,500. + Expense

D. USING THE TRANSACTIONS GIVEN IN EXERCISE C AND THE CHART OF ACCOUNTS
GIVEN BELOW, COMPLETE THE ACCOUNTING CYCLE.

CRUZ REPAIR SHOP

CHART OF ACCOUNTS
Increase Decrease Nominal
ASSETS (+) (-) or Real?
101 Cash Dr Cr Real
102 Accounts Receivable Dr Cr REal
103 Allowance for Bad Debts Cr Dr REal
104 Supplies Dr Cr Real
105 Equipment Dr Cr Real
106 Accumulated Depreciation Cr Dr REal

LIABILITIES
201 Accounts Payable Cr Dr Real
202 Utilities Payable Cr Dr Real

EQUITY
301 Cruz, Capital Cr Dr Real
302 Cruz, Drawing Dr Cr Nominal
303 Income and Expense Summary Nominal

REVENUE
401 Repairs Revenue Cr Dr Nominal

EXPENSES
501 Rent Expense
502 Salaries Expense
503 Supplies Expense
Dr Cr Nominal
504 Utilities Expense
505 Bad Debts Expense
506 Depreciation Expense

ADDITIONAL INFORMATION FOR ADJUSTMENT:

1 The equipment acquired on June 4, 2012 has an estimated useful life
of 5 years with an estimated residual value of P1,000. It is the company's
policy to depreciate the asset for full month on the month of acquisition
and no depreciation is recognized on the month of disposal.
 2 It is estimated that P300 of accounts receivable will prove to be
uncollectible.

3 Unpaid PLDT and Maynilad bills for the month of June are P270 and P130,
respectively.

4 Supplies used up, P700.

Supplies expense = 700

E. ADJUSTING JOURNAL ENTRIES

Prepare the adjusting journal entries and determine the adjusted balances of the
accounts based on the information given below:
1. Depreciation
The company purchased an equipment for P250,000 on July 1, 2011.
The company estimated that the equipment will have a useful life of 5
years and a salvage value of P5,000. It is the company's policy to
depreciate the equipment on a straight-line basis.
BEFORE ADJUSTMENT AFTER
Equipment 250,000
Accumulated Depc'n 0
Carrying value 250,000

Depreciation Expens 0

Adjusting Journal Entry: Dr Cr

Depreciation Expense 24,500
Accumulated Depreciation 24,500

2. Bad Debts
The company estimates that 2% of accounts receivable will prove to
be uncollectible.
BEFORE ADJUSTMENT AFTER
Accounts Receivable 300,000 300,000
Allowance for Bad D 4,500 1,500 6,000
Net Realizable Value 295,500 294,000

Bad Debts Expense 0

Adjusting Journal Entry: Dr Cr

Bad Debts Expense 1,500
Allowance for Bad Debts 1,500

3. Accrued Expenses
***Accrued expenses are expenses already incurred but not yet paid.
 Received a bill from Meralco on January 3, 2012 for the December
2011 energy consumption, P3,000.
BEFORE ADJUSTMENT AFTER
Utilities Payable 0 + 3000 3,000
Utilities Expense 29,700 +3000 32,700

Adjusting Journal Entry: Dr Cr

Utilities Expense 3,000
Utilities Payable 3,000

4. Accrued Revenues
***Accrued revenues are revenues already earned but not yet received.
The company sublet its office for a P2,500 monthly rental to be paid
on the 5th day of the following month.
BEFORE ADJUSTMENT AFTER
Rent Receivable 0 +2500 2,500
Rent Income 27,500 +2500 30,000

Adjusting Journal Entry: Dr Cr

Rent Receivable 2,500
Rent Income 2,500

5. Prepaid Expenses
***Prepaid Expenses are expenses already paid but not yet incurred.
The company paid a 1-year insurance of P12,000 on May 1, 2011.
1-May Prepaid Insurance 12,000 12 months as of Dec 31
Cash 12,000 8 months used
4 months unused
BEFORE ADJUSTMENT AFTER
Prepaid Insurance 12,000 -8,000 4,000
asset method

Insurance Expense 0 + 8000 8000

Adjusting Journal Entry: Dr Cr

Insurance Expense 8,000
Prepaid Insurance 8,000

What if?
1-May Insurance Expense 12,000
Cash 12,000

BEFORE ADJUSTMENT AFTER

Prepaid Insurance 0 +4,000 4,000
expense method

Insurance Expense 12,000 - 4,000 8,000

Adjusting Journal Entry: Dr Cr

Prepaid Insurance 4,000
Insurance Expense 4,000

6. Unearned Revenues
 ***Unearned revenues are revenues already received but not yet earned.
The company received advance rental payment for 6 months of
P36,000 on September 1, 2011.

1-Sep Cash 36,000

Unearned
Rent Income 36,000
36,000
= 6 4
months months 2 months
cut-off 31-Dec rent earned unearned

BEFORE ADJUSTMENT AFTER

Unearned Rent Income 36,000 -24,000 12000
liability method

Rent Income 0 +24,000 24000

Adjusting Journal Entry: Dr Cr

Unearned Rent Income 24,000
Rent Income 24,000

What if?
1-Sep Cash 36,000
Rent Income 36,000
BEFORE ADJUSTMENT AFTER
Unearned Rent Income 0 +12,000 12000
revenue method

Rent Income 36,000 -12,000 24000

Adjusting Journal Entry: Dr Cr

Rent Income 12,000
Unearned Rent Income 12,000

F. FINANCIAL STATEMENT ANALYSIS

Refer to the Financial Statements of ABC Corporation and perform (1) Vertical Analysis,
(2) Horizontal Analysis and (3) Ratio Analysis.

G. INTERNAL CONTROL
Indicate the internal control weakness and the internal control principle that is
violated in the following internal control procedures for cash.

1. Two cashiers register all over-the-counter payments. They use only one cash register.

2. All cashiers are experienced; thus they are not bonded.

 3. To minimize the risk of theft, cash in excess of P5,000 is stored in an unlocked brief case in
until it is deposited in the bank.
4. At the end of each day, the accountant counts the cash in the brief case; he is also
depositing the amounts in the bank.

5. The owner gives the store manager twenty blank but signed checks weekly.

6. The store manager approves all payments before signing. He also releases the checks to p
7. The accountant prepares the monthly bank reconciliation. He is required to report any di
owner.

H. Refer to the cash records and bank statement of XYZ, Inc. Based on the information given,
prepare a bank reconciliation.
UNTING ELEMENTS OF ASSETS, LIABILITIES,

Effects
Cr
Dr Cash + Capital Cruz , Capital

Dr Rent Expense -Asset Cr , Cash

Cr Accounts
Dr Equipment + Liabilities Payable
Cr Repairs
Dr Cash +Revenue Revenue
Cr Accounts
Dr Supplies + Liabilities Payable

Dr Accounts
Cr Supplies -Liabilities Payable

Cr Repairs
Dr Accounts Receivable + Revenue Revenue

Dr Accounts Payable -Asset Cr Cash

Cr Accounts
Dr Cash -Asset Receivable

Dr Cruz, Drawing -Asset Cr Cash

Dr Utilities Expense -Asset Cr Cash

Dr Salaries Expense -Asset Cr Cash

SFP
or SI
SFP
SFP
SFP
SFP
SFP
SFP

SFP
SFP

SFP
SFP

SI

SI
12 months as of Dec 31
8 months used expense
4 months unused asset
AFTER
4,000
8000

AFTER
4,000
8,000
 AFTER
12000
24000

AFTER
12000
24000

se only one cash register.

ed in an unlocked brief case in the stock room

in the brief case; he is also responsible for

checks weekly.

e also releases the checks to payees.

e is required to report any discrepancy to the