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Katin Co. started operations January 1 2017. During the year ended December 31, 2018, theaccounting records have been maintained on a double-entry basis, but the

Katin Co. started operations January 1 2017. During the year ended December 31, 2018, theaccounting records have been maintained on a double-entry basis, but the cash basis of accounting has been employed.

The trial balance prepared from these records on December 31, 2018 appeared as follows:

 Debit Credit 

Cash 1,500,000

Sales 4,000,000

Purchases. 2,000,000

Expenses 1,500,000

Equipment 200,000

Share capital. 2,000,000

Land 800,000

Building 1,500,000

Mortgage payable. 900,000

Retained earnings 600,000

 7,500,000. 7,500,000 

It was decided to convert the accounting records to the accrual basis on December 31, 2018. Relevant information are as

follows:

1) Accounts receivable as at December 31, 2017 and 2018 is P200,000 and P250,000, respectively.

2) The sales of 2017 included P40,000 deposited by a customer for merchandise to be delivered in 2018.

3) Accounts payable as at December 31, 2017 and 2018 is P350,000 and P280,000, respectively.

4) Accrued expenses as at December 31, 2017 and 2018 is P70,000 and P100,000, respectively.

5) Merchandise inventory as at December 31, 2017 and 2018 is P150,000 and P210,000, respectively.

6) The purchases included P100,000 cash advance to a supplier for merchandise to be delivered in 2019.

7) The equipment was acquired on July 1, 2017. The estimated life is 10 years.

8) The land and building were acquired on January 1, 2017. The life of the building is 5 years.

9) It is estimated that 10% of the outstanding accounts receivable on December 31, 2018 may prove uncollectible.

10) The mortgage was on the land and building. It was obtained on September 1, 2018. The interest rate is 12% per annum

payable semiannually on September 1 and March 1. The mortgage will mature after 4 years.

Required:

a) Adjusting entries to convert the records to accrual basis of accounting.

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