MAYIKA CLEAN Service started 2 years ago by Mai Yika. Because business has been exceptionally good, Mai decided on July 1, 2013 to expand operations by acquiring an additional truck and hiring two more assistants. To finance the expansion, Mai obtained on July 1, 2014 a P25,000, 10% bank loan, payable P10,000 on 1 July 2015, and the balance on 1 July 2016. The terms of the loan require the borrower to have P10,000 more current assets than current liabilities as at 31 December 2014. If these terms are not met, the bank loan will be refinanced at 15% interest. As at 31 December 2014, the accountant for EVERCLEAN Service prepared the statement of financial position shown below.

Mai presented the statement of financial position to the banks loan officer on 2 January 2014, confident that the business had met the terms of the loan. The loan officer was not impressed. She said, We need financial statements audited by a qualified accountant. A qualified accountant was hired and immediately realized that the statement of financial position had been prepared from a trial balance and not from an adjusted trial balance. The adjustment data at the reporting date consisted of the following:

Earned but not invoiced cleaning service were P5,700.

Cleaning supplies on hand were P2,800.

Prepaid insurance was a 3-year policy dated 1 January 2014.

December expenses incurred but unpaid as at 31 December 2014, P700.

Interest on the bank loan was not recorded.

The amounts for property, plant and equipment presented in the financial position were reported net of accumulated depreciation (cost less accumulated depreciation). These amounts were P4,000 for cleaning equipment and P5,000 for delivery trucks as at 1 January, 2014. Depreciation for 2014 was P2,000 for cleaning equipment and P5,000 for delivery trucks.

MAYIKA CLEAN SERVICE Statement of Financial Position December 31, 2014
ASSETS		LIABILITIES AND OWNERS EQUITY
Current assets		Current liabilities
Cash	P6,500	Notes Payable	P10,000
Accounts Receivable	9,000	Accounts Payable	2,500
Cleaning supplies	5,200	Total current liabilities	P12,500
Prepaid insurance	4,800	Non-current liabilities
Total current assets	P25,500	Notes payable	15,000
Property, plant and equipment		Total liabilities	P27,500
Cleaning equipment (net)	P22,000	Owners Equity
Delivery trucks (net)	34,000	Mai Yika, Capital	54,000
Total property, plant and Equipment	P56,000
Total assets	P81,500	Total liabilities and equity	P81,500

Question:

1. What are the areas of consideration of this case?

2. Give the statement of the problem of this case.

3. Give recommendations on this case.

4. State at least three alternative courses of actions.

5. Who is your point of view? (e.g. accountant, bookkeeper)

1. Accounts Recervable 5 /00 P5.700 Service evenue 2. Cleaning Supplies on Books P5,200 Actual on Hand P2,800 P2.400 Uitference Supplies Expense P2,400 Supplies Inventory P2,400 P4.800 Prcpal id Insur ance on Books 1 year consumed P1600 P1600 Prepaid Insurance P160) 4. Accrued Experises P700 Accounts Payable P700 5. Interest Expense P1250 nterest Payable P1250 6. No Journal Enry required since it is already assumed and given on the balance sheet B. PREPARATION OF FINANCIAL POSITION MAYIKA CLEAN SERVICE tatement of Po nancial on As of Decent mber 3 20 Assets Liabilit 6,500 Cash Notes Payable 0,000 14,700 Accounts Rece Mable Accounts payable 3,200 2,000 Cleaning Supplies nteres Payable 3,200 otal Current Liabilit otal Current Assets 27,200 Non-Cu rent Liabilities Notes Payable Cleaning Equipment 26.000 Total Liab 39,000 ucks Owners Equity May ika, Capital Non-Current Assets 49 (XX) TOTAL LIABILITIES & OWNERS EQUITY TOTAL ASSETS: 76,200 4,150 29,450 40,750 6.200