Problem 1

The following is the post-closing trial balance of Abagon Shop dated February 1, 2006:
Cash
Accounts Receivable
Allowance for doubtful accounts
Unused shop supplies
Shop Equipment
Accumulated depreciation - shop
equipment
Accounts payable
Notes payable
Accrued interest payable
Abagon, Capital
Total

Debit
120,000
280,000

Credit

2,800
800
240,000
48,000

640,800

88,800
100,000
1,200
400,000
640,800

For the month of February, the following are the transactions of Abagon Shop.
1.
2.
3.
4.
5.
6.
7.
8.
9.

Abagon withdrew P100,000 cash from the business for her personal use.
Paid P12,000 insurance premium.
Paid P24,000 rent.
Total service rendered to various customers, P140,000, 40% of total sales are on cash
basis and the balance on open account.
Received promissory note from customer to replace P40,000 accounts receivable.
Collected in cash P164,000 of accounts receivable.
Paid the notes payable of P100,000 plus the P2,400 interest.
Purchased P2,400 shop supplies on cash basis.
Paid salaries, P24,000.

At the end of the month, the following information are available to effect adjustments.
a. The insurance in number 2 for P12,000 is applicable for six months starting February.
b. The rent of P24,000 paid in number 3 is for 3 months, starting February.
c. The note receivable is number 5 is earning 12% interest per year. The note is dated
February 1, and is due on April 30.
d. Bad debts expense is estimated at 2% of accounts receivable balance.
e. The annual depreciation is P48,000.
f. The unused supplies balance is P1,000.
Questions
1. Cash at end of February is:
a. P 103,200
b. P 85,200

c. P 75,200

2. Net Realizable value of Accounts Receivable at end of February is

a. P 156,800
b. P 157,200
c. P 196,800
3.

Unused shop supplies at end of February is

a. P 1,800
b. P 1,000
c. P

800

4. Net book value of Shop Equipment at end of February is

a. P 188,000
b. P 189,000
c. P 184,000

d. P 72,800
d. P 197,200
d. P

200

d. P 144,000

5. Accounts Payable at end of February is

a. P 128,800
b. P 88,800

c. P 86,400

d. P 48,800

6. Notes Payable at end of February is

a. P 100,000
b. P 102,400

c. P 97,600

d. P 0

7.

Abagon Capital, net of drawing at end of February is

a. P 398,600
b. P 397,400
c. P 397,800
8.
Net income of the company at end of February is
a. P 98,600
b. P 97,400
c. P 97,800

d. P 388,600
d. P 88,600

9. Total Revenue of the company at end of February is

a. P 142,800
b. P 142,400
c. P 140,400

d. P 140,000

10. Total Expenses of the Company at end of February is

a. P 52,600
b. P 41,800
c. P 41,400

d. P 41,000

Solution
1
Abagon, drawing
Cash
2
Insurance expense
Cash
3
Rent expense
Cash
4
Cash
Accounts receivable
Revenue
5
Notes receivable
Accounts receivable
6
Cash
Accounts receivable
7
Notes payable
Interest expense
Cash
8
Supplies expense
Cash
9
Salaries
Cash

100,000
12,000
24,000
56,000
84,000
40,000
164,000

100,000
12,000
24,000
140,000
40,000
164,000

100,000
2,400
2,400
24,000

102,400
2,400
24,000

Adjusting Entry:
a
b
c
d
e
f

Prepaid Insurance
Insurance expense
Prepaid rent
Rent expense
Interest receivable
Interest income
(P40,000 x 12% x 1/12)
Bad debts
Allowance for bad debts
Depreciation
Accum. depreciation
Unused supplies
Supplies expense
Supplies expense
Unused supplies
Accrued interest payable
Interest expense
To reverse the beg. accrued interest
payable

10,000
16,000
400

10,000
16,000
400

400
4,000
1,000
800
1,200

400
4,000
1,000
800
1,200

TRIAL BALANCE

ADJUSTMENTS

75,20
0

CASH
ACCNTS RECEIV

160,000
2,800

400

3,200

40,00
0

NOTES RECEIV
UNUSED SUPPLIES

40,00
0

800

SHOP EQUIPMENT

1,000

800

1,000

240,000

240,000

ACCUM. DEPN

48,000

ACCOUNTS PAY

88,800

NOTES PAYABLE

4,000

52,000
88,800

ACC. INT. PAY

1,200

ABAGON, DRAWING

1,200

100,000

100,000

ABAGON, CAPITAL

400,000

REVENUE

140,000

INSURANCE EXP

12,000

RENT EXPENSE

24,000

SUPPLIES EXP

2,400

400,000
140,000

800

10,000

2,000

16,000

8,000

1,000

2,200

24,000

INTEREST EXP

24,000

2,400

_______

680,800

680,800

1,200

1,200

10,00
0
16,00
0

PREPAID INS
PREPAID RENT
INTEREST RECEI

10,00
0
16,00
0

400

400

INTEREST INC

400

BAD DEBTS

400

400

DEPRECIATION

400

4,000 _______
33,80
33,80
0
0

4,000
41,800

NET INCOME

98,600
140,400

Answer:
1. C
2. A

BALANCE SHEET
75,20
0

160,000

ALLOW. FOR BD

SALARIES

INCOME STATEMENT

3. B

4. A

5. B

5. D

8. A

9. A

9. C

________
140,400
________ _______
140,400

10. B

642,600

98,600
642,600