Problem
SOLARA TRADING COMPANY uses the perpetual inventory system. The company deals in one product only —
premium jasmine rice.
The beginning inventory of jasmine rice is 480 sacks at a unit cost of ₱1,250.
During December 2025, the following transactions occurred:
Dec 2 – Sold 220 sacks at ₱1,320 per sack to Aurora Traders. Terms 2/10, n/30, FOB Shipping Point.
Dec 3 – Paid ₱45 per sack for shipping charges on the Dec 2 sale.
Dec 5 – Purchased 300 sacks of jasmine rice from Laguna Suppliers, ₱1,270 per sack, terms 1/10, n/30, FOB
Destination.
Dec 6 – Received 20 sacks short on the Dec 5 purchase due to a shortage. Supplier granted an allowance.
Dec 9 – Purchased 400 sacks of jasmine rice from Makati Grains Corp, ₱1,260 per sack, terms n/30, FOB
Shipping Point.
Dec 10 – Paid freight on the Dec 9 purchase, ₱3,600 cash.
Dec 12 – Sold 300 sacks to Vigan Retailers at ₱1,350 per sack, terms 2/10, n/30, FOB Destination.
Dec 13 – Paid freight of ₱4,200 on the Dec 12 sale.
Dec 14 – Returned 10 defective sacks from the Dec 12 sale; Vigan Retailers accepted a ₱13,500 credit
memorandum.
Dec 16 – Received payment from Aurora Traders for the Dec 2 sale, less discount.
Dec 17 – Received ₱600 allowance from Makati Grains Corp due to damaged sacks.
Dec 18 – Paid Laguna Suppliers for the Dec 5 purchase, less discount.
Dec 20 – Sold 250 sacks at ₱1,340 per sack to Golden Spoon Corp, terms 2/10, n/30, FOB Shipping Point.
Dec 21 – Paid ₱3,000 freight on Dec 20 sale.
Dec 22 – Purchased 350 sacks from Mindoro Rice Mills, ₱1,275 per sack, terms 2/10, n/30, FOB Destination.
Dec 23 – Received a debit memorandum for 5 sacks shortage from Mindoro Rice Mills.
Dec 27 – Paid Makati Grains Corp in full.
Dec 28 – Received full payment from Vigan Retailers for the Dec 12 sale, less returns and discount.
Dec 29 – Sold 300 sacks at ₱1,360 per sack to Delica Foods, terms 2/10, n/30, FOB Destination.
Dec 30 – Paid ₱4,500 freight for the Dec 29 sale.
Dec 31 – Received the December electricity bill of ₱2,800, to be paid next month.
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REQUIRED
a. Post the related transactions in the inventory subsidiary ledger for Jasmine Rice, using the moving weighted
average method.
b. Prepare journal entries to record the above transactions.
b.1. Use Delivery Expense account for freight paid by the seller.
b.2. Use Jasmine Rice Inventory account for incoming freight cost chargeable to Solara Trading Company.
HARMONY GRAINS TRADING COMPANY engages in buying and selling premium brown rice.
The business uses the perpetual inventory system and applies the FIFO method.
Its fiscal year ends on December 31, 2026.
Beginning Balances (as of Dec 1, 2026)
Account Debit Credit
Cash in Bank ₱550,00
0
Accounts Receivable 180,000
Allowance for Doubtful Accounts 5,000
Inventory – Brown Rice (400 sacks @ 500,000
₱1,250)
Notes Receivable (6%, due 2027) 150,000
Investments in FATOCI Securities (at fair 100,000
value)
Equipment 350,000
Accumulated Depreciation – Equipment 70,000
Accounts Payable 250,000
Owner’s Capital 1,505,00
0
Transactions in December 2026
Dec 2 – Purchased 300 sacks of brown rice @ ₱1,260/sack from Taal Suppliers, terms n/30, FOB Shipping
Point.
Dec 3 – Paid freight on the Dec 2 purchase, ₱3,600 cash.
Dec 5 – Sold 250 sacks @ ₱1,320/sack to Sampaguita Retail, terms 2/10, n/30, FOB Destination.
Dec 6 – Paid freight on the Dec 5 sale, ₱2,800 cash.
Dec 7 – Received ₱50,000 cash from customers on account.
Dec 8 – Purchased 400 sacks from Batangas Rice Depot, ₱1,270/sack, terms 1/10, n/30, FOB Destination.
Dec 9 – Returned 20 sacks from the Dec 8 purchase due to damage; allowance received.
Dec 10 – Sold 300 sacks @ ₱1,350/sack to Cavite Supermarket, terms 2/10, n/30, FOB Shipping Point.
Dec 11 – Paid freight of ₱3,000 on Dec 10 sale.
Dec 12 – Collected full payment from Sampaguita Retail (Dec 5 sale), less discount.
Dec 14 – Paid ₱15,000 utilities expense.
Dec 16 – Received notice from bank that a customer’s ₱10,000 check was NSF.
Dec 17 – Paid Taal Suppliers in full.
Dec 18 – Purchased 350 sacks from Laguna Mills, ₱1,275/sack, terms n/30, FOB Shipping Point.
Dec 19 – Paid freight on Dec 18 purchase, ₱2,500.
Dec 21 – Sold 280 sacks @ ₱1,340/sack to Bay Retailers, terms 2/10, n/30, FOB Destination.
Dec 22 – Paid freight of ₱3,200 on Dec 21 sale.
Dec 23 – Received ₱5,000 dividend income from FATOCI investments.
Dec 24 – Fair value of FATOCI investments increased to ₱110,000.
Dec 27 – Received payment from Cavite Supermarket (Dec 10 sale), less discount.
Dec 28 – Issued ₱10,000 check for repairs expense.
Dec 29 – Owner withdrew ₱25,000 cash for personal use.
Dec 30 – Bank statement shows a balance of ₱620,000. A review reveals:
● Outstanding checks ₱8,000
● Deposits in transit ₱10,000
● Bank service charge ₱300
● A customer’s note for ₱20,000 plus ₱600 interest was collected by the bank.
Dec 31 – Accrued depreciation on equipment ₱35,000.
Dec 31 – Company estimates 2% of total sales for the month to be uncollectible (Income Statement
Method).
Dec 31 – Physical count shows 300 sacks of brown rice remain.
Dec 31 – Accrued salaries expense ₱18,000.
REQUIRED
A. Journal Entries
Prepare the journal entries for all December transactions.
B. Inventory Subsidiary Ledger
Prepare a FIFO perpetual inventory record to determine:
C. Bank Reconciliation (as of Dec 31, 2026)
Prepare the bank reconciliation statement and determine the adjusted cash balance.
D. Adjusting Entries
Prepare adjusting entries for:
1. Bank service charge
2. Bank collection of note
3. Depreciation expense
4. Allowance for doubtful accounts (using Income Statement Method)
5. Accrued salaries
6. FATOCI fair value adjustment
E. Worksheet
Prepare a 10-column worksheet for the month ended December 31, 2026 showing
F. Financial Statements
1. Income Statement
2. Statement of Comprehensive Income (showing unrealized gain on FATOCI)
3. Statement of Changes in Owner’s Equity
4. Statement of Financial Position (Balance Sheet)
G. Closing Entries
Journalize the closing entries to close temporary accounts.
H. Cash and Cash Equivalents
Prepare a schedule of Cash and Cash Equivalents as of December 31, 2026 after reconciliation.
J. Accounts Receivable – Net Realizable Value
Compute the Net Realizable Value (NRV) of Accounts Receivable as of December 31, 2026 using:
NRV=Accounts Receivable−Allowance for Doubtful Accounts (adjusted)
Allowance for Doubtful Accounts is computed using the Income Statement Method (2% of total sales) for
December.