Chapter 13

Completing the Accounting Cycle for a

Merchandising Business

Exercises

Exercise 1

Credit

1. Allowance for Uncollectible Accounts

2. Rent Expense
3. Office Supplies Expense
4. Salaries Payable
5. Prepaid Insurance (or Unexpired Insurance)
6. Interest Revenue
7. Interest Payable
8. Unearned Rent
9. Accumulated Depreciation
10. Income Summary

Exercise 2

1. Interest Expense 6,000

Interest Payable 6,000
(P200,000 x 12% x 90/360 = P6,000)

2. Salaries Expense 72,000

Salaries Payable 72,000
(P180,000 x 2/5)

3. Interest Receivable 4,500

Interest Revenue 4,500
(P 300,000 x 12% x 45 / 360 = P4,500)

4. Insurance Expense 22,500

Prepaid Insurance 22,500
(P60,000 x 9 / 24 = 22,500)

5. Rent Income240,000
Unearned Rent Income 240,000
(P 360,000 x 8 / 12 = P 240,000)
2 Chapter 13

6. Depreciation Expense 80,000

Accumulated Depreciation 80,000
(P 640,000 P 40,000 x 8/12 = P 80,000)
5 years

7. Uncollectible Accounts Expense 2,000

Allowance for Uncollectible Accounts 2,000
(P 6,000 P4,000 credit balance = P 2,000)

8. Merchandise Inventory 85,000

Income Summary 85,000

Exercise 3

1. Unearned Admissions 625,000

Admissions Income 625,000
(P1,000,000 x 5 / 8 = P 625,000 )

2. Cash of P1,000,000 was received in advance and was duly recorded by the
Association as an asset with a corresponding recognition of a liability,
Unearned Admissions. Thus, it can spend the money for regular
operations. The liability, Unearned Admissions is reflected in the books
and financial statements of the Association until it is earned, and transferred
to Admissions Income.

Exercise 4

Shown below are selected worksheet columns. Indicate by a check mark in

which columns the balances of the following accounts should appear:

Account Title Income Statement Balance Sheet

Debit Credit Debit Credit
1. Cash
2. Carissa, Drawing
3. Merchandise Inventory beginning
4. Utilities Expense
5 Allowance for Bad Debts
6 Merchandise Inventory, end
7 Purchase Discount
8 Freight In
9 Unearned Fees
10 Sales returns and Allowances
11. Sales
12 Net Loss
 Completing the Accounting Cycle for a Merchandising Business 3

Exercise 5

1. a. Interest Expense 50,000

Interest Payable 50,000
(P1,000,000 x 6% x 10/12 =
P50,000)

b. Prepaid Insurance 60,000

Insurance Expense 60,000
(P72,000 x 30/36 = P60,000)

c. Prepaid Rent 135,000

Rent Expense 135,000
(P180,000 x 9/12 = P240,000)

d. Uncollectible Accounts Expense 2,500

Allowance for Uncollectible Accounts 2,500
(P1,000 debit balance + P1,500
= P 2,500)
e. Salary Expense 120,000
Salaries Payable 120,000
(P300,000 x 2/5 = P120,000)

f. Depreciation Expense Office Equipment 116,000

Accumulated Depreciation Office 116,000
Equipment
P960,000 10 yrs. = P 96,000 +
P240,000 10 yrs x 10/12 = 20,000 = P 116,000

g. Supplies on Hand 7,000

Supplies Expense 7,000

h. Rental Revenue 200,000

Unearned Rent 200,000
(P300,000 x 4/6 = P 200,000)

i. Income Summary 300,000

Merchandise Inventory 300,000

Merchandise Inventory 360,000

Income Summary 360,000

2. a, b, c, e, g & h
4 Chapter 13

Exercise 6

1. a. Unearned Rent 180,000

Rent Revenue 180,000
(P540,000 x 6/18 = P 180,000)

No reversing entry

b. Insurance Expense 22,500

Prepaid Insurance 22,500
(P180,000 x 3/24 = P 22,500)

No reversing entry

2. a. Rent Revenue 360,000

Unearned Rent 360,000
(P540,000 x 12/18 = P360,000)

Reversing entry:
Unearned Rent 360,000
Rent Revenue 360,000

b. Prepaid Insurance 157,500

Insurance Expense 157,500
P180,000 x 21/24 = P 157,500

Reversing entry:
Insurance Expense 157,500
Prepaid Insurance 157,500

Exercise 7

1. a. Income Summary 50,000

Inventory, beg. 50,000

Inventory, end 140,000

Income Summary 140,000

b. Inventory, end 140,000

Purchases Returns 20,000
Cost of Goods Sold 2,000,000
Purchases 2,100,000
Freight-in 10,000
 Completing the Accounting Cycle for a Merchandising Business 5

Inventory, beg. 50,000

2. Approach 2
a. Sales 5,000,000
Interest Income 25,000
Income Summary 5,025,000

b. Income Summary 2,980,000

Cost of Goods Sold 2,000,000
General Expense 500,000
Sales Returns 5,000
Sales Discounts 10,000
Selling Expenses 450,000
Interest Expense 15,000

c. Income Summary 2,045,000

Castro, Capital 2,0450,000

d. Castro, Capital 500,000

Castro, Drawing 500,000

Exercise 8

1. A 6. b or c 11. b 16. b
2. A 7. A 12. a 17. a
3. A 8. C 13. a 18. c
4. A 9. A 14. a 19. b
5. B 10. B 15. c 20. b

Exercise 9

1. a. Insurance Expense 6,000

Prepaid Insurance 66,000
P72,000 x 3/36 = P66,000

No reversing entry

b Unearned Rent 60,000

Rent Revenue 60,000
P270,000 x 2/9

No reversing entry

c. Supplies on Hand 3,000

Supplies expense 3,000
6 Chapter 13

Reversing entry:

Supplies expense 3,000

Supplies on hand 3,000

d. Depreciation Expense 33.750

Accumulated Depreciation 33,750
P460,000 10,000 /10 x 9/12) =
P33,750

No reversing entry

e. Uncollectible Accounts Expense 4,500

Allowance for Uncollectible Accounts 4,500

No reversing entry

f. Interest Receivable 1,500

Interest Revenue 1,500
P150,000 x 12% x 30/360 =
P1,500

Reversing entry:
Interest Revenue 1,500
Interest Receivable 1,500

g. Salary Expense 40,000

Salaries Payable 40,000

Reversing entry:
Salaries Payable 40,000
Salary Expense 40,000

h. Merchandise Inventory 172,500

Income Summary 172,500
Completing the Accounting Cycle for a Merchandising Business 7
 Completing the Accounting Cycle for a Merchandising Business 8

Exercise 10
9 Chapter 13

Exercise 11

Syyap Services: Effects of Adjustments on the Accounts in the Statement of

Recognized Income and Expenses (Income Statement) and the Statement of
Financial Position (Balance Sheet)

Statement of Recognized Statement of Financial

Income and Expenses Position
Adjustin Revenu Expense Net Liabilitie
g Entry e s Income Assets s Capital
a. NE + - NE + -
b. + NE + + NE +
c. NE + - - NE -
d. NE + - - NE -
e. NE + - - NE -
f. + NE + NE - +
g. NE + - NE + -

Exercise 12

a. Income Summary 40,000

Merchandise Inventory 40,000

b. Merchandise Inventory 50,000

Income Summary 50,000

c. Sales 1,900,000
Purchase Returns & Allowance 30,000
Income Summary 1,930,000

d. Income Summary 1,343,000

Sales Returns and Allowance 50,000
Purchases 1,000,000
Freight-in 40,000
Supplies Expense 6,000
Insurance Expense 9,000
Salary Expense 180,000
Depreciation Expense 8,000
Office Expense 50,000

e. Income Summary 587,000

Olson, Capital 587,000

f. Olson, Capital 60,000

Olson, Drawing 60,000
10 Chapter 13

Multiple Choice Questions

1. C 4. D 7. B 10. A
2. C 5. B 8. C
3. C 6. B 9. B

True or False

1. T 6. T 11. F 16. T
2. F 7. F 12. T 17. T
3. T 8. T 13. F 18. T
4. F 9. T 14. T 19. T
5. F 10. F 15. F 20. F
 Completing the Accounting Cycle for a Merchandising Business 11

Test Material

Test Material 13-1

12 Chapter 13

Test Material 13-2

 Completing the Accounting Cycle for a Merchandising Business 13

Test Material 13-3

Requirements (1) and (5)

ACCOUNT CASH ACCOUNT NO. 11

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 31 Bal. 64 3 0 0

ACCOUNT ACCOUNTS RECEIVABLE ACCOUNT NO. 12

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 31 Bal. 190 9 0 0

ACCOUNT INVENTORY ACCOUNT NO. 13

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 31 Bal. 654 0 0 0
31 Adj. J.3 16 8 0 0 637 2 0 0

ACCOUNT SUPPLIES ACCOUNT NO. 14

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 1 Bal. 27 0 0 0
31 Adj. J.3 15 0 0 0 12 0 0 0

ACCOUNT BUILDING ACCOUNT NO. 15

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 1 Bal. 1 881 7 0 0

ACCOUNT ACCUMULATED DEPRECIATION - BUILDING ACCOUNT NO. 16

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 1 Bal. 360 000
31 Adj. J.3 4 000 400 000
14 Chapter 13

ACCOUNT FIXTURES ACCOUNT NO. 17

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 1 Bal. 456 0 0 0

ACCOUNT ACCUMULATED DEPRECIATION - FIXTURES ACCOUNT NO. 18

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 1 Bal. 58 000
31 Adj. J.3 48 0 0 0 106 000

ACCOUNT ACCOUNTS PAYABLE ACCOUNT NO. 21

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 31 Bal. 283 000

ACCOUNT SALARY PAYABLE ACCOUNT NO. 22

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 31 Adj. J.3 11 500 11 500

ACCOUNT INTEREST PAYABLE ACCOUNT NO. 23

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 31 Adj. J.3 7 800 7 800

ACCOUNT UNEARNED SALES REVENUE ACCOUNT NO. 24

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 1 Bal. 65 600
31 Adj. J.3 53 600 12 000
 Completing the Accounting Cycle for a Merchandising Business 15

ACCOUNT NOTE PAYABLE, LONG-TERM ACCOUNT NO. 25

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 31 Bal. 87 000

ACCOUNT JC CRUZ, CAPITAL ACCOUNT NO. 31

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 1 Bal. 1 449 800
31 Clo. J.3 194 0 0 0 1 643 800
31 Clo. J.3 92 000 1 551 800

ACCOUNT JC CRUZ, DRAWING ACCOUNT NO. 32

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 31 Bal. 92 0 0 0
31 Clo. J.3 92 0 0 0

ACCOUNT INCOME SUMMARY ACCOUNT NO. 33

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 31 Clo. J.3 1 833 3 0 0 1 833 300
31 Clo. J.3 1 639 300 194 000
31 Clo. J.3 194 000

ACCOUNT SALES REVENUE ACCOUNT NO. 41

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 31 Bal. 53 6 0 0 1 779 700
31 Adj. J.3 1 833 300 1 833 300
31 Clo. J.3

ACCOUNT SALES DISCOUNTS ACCOUNT NO. 42

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 31 Bal. 73 0 0 0
31 Clo. J.3 73 0 0 0
16 Chapter 13

ACCOUNT SALES RETURNS AND ALLOWANCES ACCOUNT NO. 43

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 31 Bal. 81 4 0 0
31 Clo. J.3 81 4 0 0

ACCOUNT COST OF GOODS SOLD ACCOUNT NO. 51

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 31 Bal. 1 030 0 0 0
31 Adj. J.3 16 800 1 046 8 0 0
31 Clo. J.3 1 046 8 0 0

ACCOUNT SELLING EXPENSE ACCOUNT NO. 54

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 31 Bal. 215 200
31 Adj. J.3 7 500 222 700
31 Adj. J.3 10 000 232 700
31 Adj. J.3 12 000 244 700
31 Clo. J.3 244 700

ACCOUNT GENERAL EXPENSE ACCOUNT NO. 55

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 31 Bal. 100 600
31 Adj. J.3 7 500 108 100
31 Adj. J.3 30 000 138 100
31 Adj. J.3 36 000 174 100
31 Adj. J.3 11 500 185 600
31 Clo. J.3 185 600

ACCOUNT INTEREST EXPENSE ACCOUNT NO. 56

DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Jan. 31 Adj. J.3 7 800 7 800
31 Clo. J.3 7 800
 Completing the Accounting Cycle for a Merchandising Business 17

Requirement (2)
Happy Palace Company
Worksheet
For the Month Ended January 31, 2008

Trial Balance Adjustments Income Statement Balance Sheet

DR CR DR CR DR CR DR CR
Cash 64,300 64,300
Accounts receivable 190,900 190,900
Inventory 654,000 (f) 16,800 637,200
Supplies 27,000 (a) 15,000 12,000
Building 1,881,700 1,881,700
Accumulated depreciation
building 360,000 (b-1) 40,000 400,000
Fixtures 456,000 456,000
Accumulated depreciation
fixtures 58,000 (b-2) 48,000 106,000
Accounts payable 283,000 283,000
Salary payable (d) 11,500 11,500
Interest payable (e) 7,800 7,800
Unearned sales revenue 65,600 (c) 53,600 12,000
Notes payable, long-term 870,000 870,000
JC Cruz, Capital 1,449,800 1,449,800
JC Cruz, Drawing 92,000 9,200
Sales revenue 1,779,700 (c) 53,600 1,833,300
Sales discounts 73,000 73,000
Sales returns and allowance 81,400 81,400
Cost of goods sold 1,030,000 (f) 16,800 1,046,800
Selling expense 215,200 (a) 7,500 244,700
(b-1) 10,000
*
(b-2) 12,000
*
General expense 100,600 (a) 7,500 185,600
(b-1) 30,000
*
(b-2) 36,000
*
(d) 11,500
Interest expense (e) 7,800 7,800
18 Chapter 13

4,866,100 4,866,100 192,700 192,700 1,639,300 1,833,300 3,334,100 3,140,100

Net income 194,000 194,000
1,833,300 1,833,300 3,334,100 3,334,100
*Instructional note: Students may combine the b-1 and b-2 amounts as P22,000 Selling expense and P66,000 General expense.
 Completing the Accounting Cycle for a Merchandising Business 19

Requirement (3)

Happy Palace Company

Income Statement
For the Month Ended January 31, 2008
Sales revenue P1,833,300
Less: Sales discounts P73,000
Sales returns and allowances 81,400 154,400
Net sales revenue P1,678,900
Cost of goods sold 1,046,800
Gross margin 632,100
Operating expenses:
Selling expenses P 244,700
General expense 185,600 430,300
Income from operations 201,800
Other expense:
Interest expense 7,800
Net income P 194,000

Happy Palace Company

Statement of Owners Equity
For the Month Ended January 31, 2008
JC Cruz, capital, January 1, 2008 P1,449,800
Add: Net income 194,000
1,643,800
Less: Withdrawals 92,000
JC Cruz, capital, January 31, 2008 P1,551,800
20 Chapter 13

Happy Palace Company

Balance Sheet
January 31, 2008
ASSETS
Current assets:
Cash P 64,300
Accounts receivable 190,900
Inventory 637,200
Supplies 12,000
Total current assets 904,400
Plant:
Building P1,881,700
Less: Accumulated depreciation 40,000 1,481,700
Fixtures P 456,000
Less: Accumulated depreciation 106,000 350,000
Total assets P2,736,100
LIABILITIES
Current:
Accounts payable P 283,000
Salary payable 11,500
Interest payable 7,800
Unearned commission revenue 12,000
Total current liabilities 314,300
Long-term:
Note payable 870,000
Total liabilities 1,184,300
OWNERS EQUITY
JC Cruz, capital 1,551,800
Total liabilities and owners equity P2,736,100
 Completing the Accounting Cycle for a Merchandising Business 21

Requirement (4)

GENERAL JOURNAL

Post
Date Account Titles and Explanation Ref Debit Credit
2008 Adjusting Entries
January 31 Selling Expense 54 7,500
General Expense 55 7,500
Supplies 14 15,000

31 Selling Expense 54 10,000

General Expense 55 30,000
Accumulate depreciation Building 16 40,000

31 Selling Expense 54 12,000

General Expense 55 36,000
Accumulated depreciation Fixtures 18 48,000

31 Unearned Sales Revenue 24 53,600

Sales Revenue 41 53,600

31 General Expense 55 11,500

Salary Payable 22 11,500

31 Interest Expense 56 7,800

Interest Payable 23 7,800

31 Cost of Goods Sold 51 16,800

Inventory 13 16,800
22 Chapter 13

GENERAL JOURNAL

Post
Date Account Titles and Explanation Ref Debit Credit
2008 Closing Entries
January 31 Sales Revenue 41 1,833,300
Income Summary 33 1,833,300

31 Income Summary 33 1,639,300

Cost of Goods Sold 51 1,046,800
Sales Discounts 42 73,000
Sales Returns and Allowances 43 81,400
Selling Expense 54 244,700
General Expense 55 185,600
Interest Expense 56 7,800

31 Income Summary
(P1,833,300 - P1,639,300) 33 194,000
JC Cruz, Capital 31 194,000

31 JC Cruz, Capital 31 92,000

JC Cruz, Drawing 32 92,000