Hi tutor, its all about CASH AND ACCRUAL BASIS, help me to solve for it and provide explanation in order to understand and review it for exam
PROBLEMS Problem 14-1 (AICPA Adapted) Zeta Company reported sales revenue of P4,600,000 in the income statement for the year ended December 31, 2019. The entity wrote off uncollectible accounts totaling P50,000 during the current year. 2018 2019 Accounts receivable 1,000,000 1,300,000 Allowance for uncollectible accounts 60,000 110,000 Advances from customers 200,000 300,000 Under cash basis, what amount should be reported as sales for the current year? a. 4,400,000 b. 4,350,000 C. 4,300,000 d. 4,250,000 Problem 14-2 (AICPA Adapted) During 2019, Kew Company, a service organization, had P200,000 in cash sales and P3,000,000 in credit sales. The accounts receivable balances were P400,000 and P485,000 on December 31, 2018 and 2019, respectively. If the entity desires to prepare a cash basis income statement, what amount should be reported as sales for the current year? a. 3,285,000 b. 3,200,000 C. 3, 115,000 d. 2,915,000ing nt 14-15 (AICPA Adapted) ed er Rara Company paid P72,000 to renew an insurance policy for three years on March 1, 2018. On March 31, 2019, the unadjusted trial balance showed P3,000 for prepaid insurance and P72,000 for insurance expense. 1. What amount should be reported for prepaid insurance on March 31, 2019? a. 70,000 b. 71,000 c. 72,000 d. 73,000 2. What amount should be reported for insurance expense for the three months ended March 31, 2019? a. 5,000 b. 3,200 c. 2,000 d. 1,000 Problem 14-16 (AICPA Adapted) On July 1, 2019, Roxy Company obtained fire insurance at. an annual premium of P72,000 payable on July 1 of each year. The first premium payment was made July 1, 2019. On October 1, 2019, the entity paid P24,000 for real estate taxes to cover the period ending September 30, 2020. On December 31, 2019, what amount should be reported as prepaid expenses? a. 60,000 b. 54,000 C. 48,000 d. 36,000 309Problem 14-21 (AICPA Adapted) Pro Tara Company owns an office building and leases the offices Zan under a variety of rental agreements involving rent paid in Du advance monthly or annually. rec the Not all tenants make timely payments of their rent, During 2019, the entity received P8,000,000 cash from tenants. The 31, The statement of financial position contained the following data at year-end: Ca Sa 2018 2019 Pu Rental receivable 960,000 Ex 1,240,000 E Unearned rental income 3,200,000 Uncollectible rent written off 2,400,000 Sh 500,000 La Bu What amount of rental revenue should be reported for the M current year? R a. 9,080,000 b. 9,580,000 C. 8,580,000 d. 7,980,000 Problem 14-22 (AICPA Adapted) Carey Company assigns patent rights for which royalties are received. During 2019, the entity received royalty remittance of P2,500,000. The following data are available at year-end: 2018 2019 Royalties receivable 750,000 800,000 Unearned royalties 450,000 650,000 What amount should be reported as royalty revenue for the current year? a. 2,250,000 b. 2,300,000 c. 2,350,000 d. 2,550,000 312Problem 14-17 (AICPA Adapted) Pr Clay Company borrowed money under various loan agreements involving notes discounted and notes requiring interest Do payments at maturity. During the year ended December 31, ac 2019, the entity paid interest totaling P100,000. bef fol The December 31 statement of financial position included the following information: 2018 2019 Prepaid interest 23,500 18,000 Interest payable 45,000 53,500 What amount of interest expense should be reported in the W income statement for the current year? fo a. a. 86,000 b . b. 97,000 C. 103,000 d. d. 114,000 Problem 14-18 (AICPA Adapted) On December 31, 2019, Ashe Company had a P990,000 balance in the advertising expense account before any year-end adjustments relating to the following: Radio advertising spots broadcast during December 2019 were billed to the entity on January 4, 2020. The invoice cost of P50,000 was paid on January 15, 2020. Included in the P990,000 is P60,000 for newspaper campaign. advertising for a January 2020 sales promotional What amount should be reported as advertising expense for the year ended December 31, 2019? a. 930,000 b. 980,000 C. 1,000,000 d. 1,040,000 310ments Problem 14-19 (AICPA Adapted) erest er 31, Doren Company reported that the compensation expense account had a balance of P490,000 on December 31, 2019 before any appropriate year-end adjustment relating to the d the following: * No salary accrual was made for the week of December 019 25-31, 2019. Salaries for this period totaled P18,000 and were paid on January 5, 2020. * 500 Bonus for 2019 was paid on January 31, 2020 in the total amount of P175,000. the What amount should be reported for compensation expense for 2019? a. 683,000 b. 665,000 C . 508,000 d. 490,000 Problem 14-20 (AICPA Adapted) Pak Company reported that the professional fees expense account had a balance of P820,000 on December 31, 2019, before considering year-end adjustments relating to the following: . Consultants were hired for a special project at a total fee not to exceed P650,000. The entity has recorded P550,000 of this fee based on billings for work performed in 2019. The attorney's letter requested by the auditors dated January 31, 2020 indicated that legal fees of P60,000 were billed on January 15, 2020 for work performed in November 2019, and unbilled fees for December 2019 were P70,000. What amount should be reported for professional fees expense for the year ended December 31, 2019? a. 1,050,000 b. 950,000 C. 880,000 d. 820,000 311Problem 14-13 (AICPA Adapted) Prob Otis Company acquired rights to a patent under a licensing agreement that required an advance royalty payment Rara when the agreement was signed. The entity remitted three royalties earned and due under the agreement on October 31 each year. On M Additionally, on the same date, the entity paid, in advance, for p estimated royalties for the next year. The entity adjusted prepaid royalties at year end. The entity provided the 1. V following information for the current year: Jan. 1 Prepaid royalties 650,000 Oct. 31 Royalty payment charged to royalty expense 1, 100,000 Dec. 31 Year-end credit adjustment to expense 250,000 What amount should be reported as prepaid royalties at year-end? a. 250,000 2. b. 400,000 C. 850,000 d. 900,000 Problem 14-14 (AICPA Adapted) Thrift Company reported that the unadjusted prepaid expense account on December 31, 2019 comprised the following: P . An opening balance of P15,000 for a comprehensive insurance policy. The entity had paid an annual premium of P30,000 on July 1, 2018. an A P32,000 annual insurance premium payment made July 1, 2019. O A P20,000 advance rental payment for a warehouse that ta was leased for one year beginning January 1, 2019. On December 31, 2019, what amount should be reported as prepaid expenses? a. 52,000 b. 36,000 C. 20,000 d. 16,000 308Problem 14-5 (AICPA Adapted) the Easter Company reported that all insurance premiums paid are debited to prepaid insurance. For interim reporting, the entity made monthly charges to insurance expense with an offset to prepaid insurance. The entity provided the following DOO information for the current year: 00 Prepaid insurance on January 1 00 Charges to insurance expense during the year 150,000 including year-end adjustment of P25,000 31, Prepaid insurance on December 31 625,000 175,000 off he year? What was the amount of insurance premium paid in the current e a. 625,000 b. 475,000 c. 600,000 d. 650,000 Problem 14-6 (IAA) Seaside Company provided the following data for the current year: Operating expenses: Depreciation 1,000,000 Insurance 700,000 Salaries 1,500,000 Total operating expenses 3,200,000 December 31 January 1 Prepaid insurance 200,000 150,000 Accrued salaries payable 100,000 120,000 What amount was paid for operating expenses? a. 3,270,000 b. 2,270,000 C. 2, 130,000 d. 2,230,000 303Problem 14-3 (AICPA Adapted) Spee Company provided the following information for the current year: Cash sales Gross Returns and allowances 2,000,000 Credit sales 100,000 Gross Discounts 3,000,000 150,000 On January 1, customers owed P1,000,000. On December 31, customers owed P750,000. The entity used the direct writeoff method for bad debts. No bad debts were recorded in the current year. Under cash basis, what amount of revenue should be reported for the current year? a. 5,000,000 b. 4,750,000 C. 4,250,000 d. 1,900,000 Problem 14-4 (IAA) Jacqueline Company began the current year with accounts receivable of P1,000,000 and allowance for doubtful accounts of P80,000. During the current year, the following events occurred: Accounts written off 120,000 Cash sales 500,000 Sales on account 3,000,000 Doubtful accounts expense recognized 200,000 At the end of the current year, the entity showed a balance in accounts receivable of P1, 680,000. Under cash basis, what amount should be reported as sales? a. 2,700,000 b. 2,200,000 C. 3,500,000 d. 3,320,000Problem 14-9 (AICPA Adapted) Hard Company maintained accounting records on the cash basis but restated the financial statements to the accrual basis of accounting. The entity had P6,000,000 in cash basis income for 2019. The entity provided the following information at year-end: Accounts receivable 2019 2018 Accounts payable 4,000,000 1, 500,000 2,000,000 3,000,000 Under accrual basis, what amount of income should be reported in the 2019 income statement? a. 2,500,000 b. 5,500,000 C. 6,500,000 d. 9,500,000 Problem 14-10 (AICPA Adapted) Mall Company reported the following balances at the end of each year: 2019 2018 Inventory 2,600,000 2,900,000 Accounts payable 750,000 500,000 The entity paid suppliers P4,900,000 during the year ended December 31, 2019. What amount should be reported for cost of goods sold in 2019? a. 5,450,000 b. 4,950,000 C. 4,850,000 d. 4,350,000end: Problem 14-12 (IAA) 019 00 Emmyrelle Company provided the following selected 00 year: accounts, cash receipts and disbursements for the current les 100 Accounts receivable December 31 January 1 Notes receivable Accounts payable 250,000 d Notes payable 150,000 300,000 100,000 Prepaid insurance 120,000 200,000 160,000 30,000 150,000 t 10,000 Cash receipts for current year Cash sales Collections of accounts receivable, net of discounts 500,000 of P40,000 Collections of notes receivable 1,800,000 Bank loan - one year, dated December 31 80,000 Purchase returns and allowances 100,000 60,000 Cash disbursements for current year Cash purchases 130,000 Payments on accounts payable, net of discounts of P20,000 1,500,000 Payments on notes payable 400,000 Insurance 220,000 Other expenses 650,000 Sales returns and allowances 50,000 1. Under accrual basis, what is the amount of gross sales for the current year? a. 2,420,000 b. 2,470,000 C. 1,920,000 d. 1,970,000 2. Under accrual basis, what is the amount of gross purchases for the current year? a. 1,960,000 b. 2,020,000 C. 1,830,000 d. 1,890,000 307Problem 14-7 (AICPA Adapted) On February 1, 2019, Tory began a service proprietorship with an initial cash investment of P200,000. The proprietorship provided P500,000 of services in February and received full payment in March. The proprietorship incurred expenses of P300,000 in February which were paid in April. During March, Tory drew P100,000 against the capital account. In the proprietorship's statement of financial position on March 31, 2019 prepared under cash basis, what amount should be reported as capital? a. 100,000 b. 300,000 C. 600,000 d. 700,000 Problem 14-8 (AICPA Adapted) Reid Company, which began operations on January 1, 2018, has elected to use cash basis accounting for tax purposes and accrual basis accounting for the financial statements. The entity reported sales of P1, 750,000 and P800,000 in the tax returns for the years ended December 31, 2019 and 2018, respectively. The entity reported accounts receivable of P300,000 and P500,000 in the statement of financial position on December 31, 2019 and 2018, respectively. What amount should be reported as sales in the income statement for the year ended December 31, 2019? a. 1, 450,000 b. 1,550,000 c. 1,950,000 d. 2,050,000 304
