No need for adjusting journal entries

You are auditing the financial statements of Adelaida Inc. for the year ended December 31, 2020. The

company only maintain cash receipt and cash disbursement journals and records transactions under

cash basis.

The following summarizes your audit findings:

a. Cash records show the following information:

CASH DISBURSEMENTS

Payments to suppliers P7,063,200

Payments of operating expenses 3,757,500

Cash refund to customers for sales returns 568,500

CASH RECEIPTS

Collections from customers, excluding recoveries of

previous write offs

P16,216,800

Collections of royalty income 1,397,700

Collections of previously written-off outstanding invoices 457,500

Cash refund from suppliers for purchase returns 299,400

b. The following information are relevant regarding the company's operating expenses and other

income:

Dec. 31,2020 Dec. 31,2019

Accrued operating expenses P1,83,900 P1,288,800

Prepaid operating expenses 295,500 630,300

Unearned royalty income 162,300 203,

c. Receivables from customers, based on outstanding invoices at the beginning of the year is at

while receivables from customers at the end of the year was at P2,837,100.

P735,900 of the uncollected invoices were written off during the year while P457,500 of the

previously written-off invoices were collected. Customers took advantage of a total of

P712,500 sales discount during the year while sales returns from customers for the year was

at P1,275,600 including the refunds made to the customers. Advance collections from

customers as of December 31, 2020 for merchandise to be delivered in 2021 was at

P1,246,800.

d. P704,400 of the outstanding invoices at the beginning of the year is doubtful of collection

while P589,500 of the outstanding invoices at the end of the year is doubtful of collection.

e. Payables to suppliers of merchandise, based on outstanding supplier invoices at the beginning

of the year was at while payables to suppliers at the end of the year was at

P2,628,300. Purchase discounts for the year was at P707,400 while purchase returns for the

year was at P946,200 which included refunds from the suppliers.

f. Unsold merchandise on hand at the beginning and at the end of the year were at P1,962,900

and P2,425,200, respectively.

g. The company had two delivery vehicles acquired at the beginning of 2018 at P4,200,000 each.

The company estimates that the trucks have a useful life of 15 years from date of purchase

and will have a 10% salvage value based on cost. No depreciation has been provided on the

vehicles under the cash basis records.

Requirements:

26. What is the correct accrual basis gross sales for the year?

a. 16,211,100 c. 17,459,400

b. 16,779,600 d. 14,223,000

27. What is the correct accrual basis cost of sales for the year?

a. 7,130,700 c. 7,593,000

b. 9,246,600 d. 7,430,100

28. What is the accrual basis operating expense for the year (except depreciation and bad debt

expense)?

a. 4,667,400 c. 4,037,100

b. 4,962,900 d. 2,847,600

29. What is the bad debt expense for the year?

a. 393,300 c. 339,300

b. 136,500 d. 163,500

30. What is the accrual basis royalty income for the year?

a. 1,356,300 c. 1,349,100

b. 1,546,300 d. 1,439,100

31. What is the correct net income for the year?

a. 3,196,500 c. 3,140,500

b. 3,360,000 d. 3,465,600