Problem 1. The interest expense account in the general ledger is shown below. The account's lettered postings for the year (Jan. 1-Dec. 31, 2021) are shown with the account. For prepayment, the company uses the expense method.

 

Interest expense T-Account
P10,000	P4,000
120,000	16,000
14,000	124,000

 

REQUIREMENT:

1. Identify what kind of journal entries the lettered posting came from? Which one is a reversing entry, current entry,  adjusting entry, and closing entry?
2. Reconstruct the six (6) journal entries complete with explanation. Arrange them chronologically (Jan. 1- Dec. 31, 2021)

 

2. The Kentucky Company is owned and managed by William Go. He's working on a budget for the first six months of 2021, and the income statement forecasts for each month are as follows:

	Jan.	Feb.	Mar.	Apr.	May	June
Sales	P92,000	P82,000	P102,000	P146,000	P172,000	P188,000
Cost of sales	P50,000	P46,000	P56,000	P68,000	P88,000	P96,000
Expenses	16,000	14,000	16,000	22,000	24,000	28,000
Depreciation	8,000	8,000	8,000	8,000	10,000	10,000
Total	P74,000	P68,000	P80,000	P98,000	P122,000	P134,000
Net income	P18,000	P14,000	P22,000	P48,000	P50,000	P54,000

 

William anticipates the following changes in various balance sheet accounts each month during each month. The following are the increases and (decreases):

	Jan.	Feb.	Mar.	Apr.	May	June
Accounts receivable	P(6,000)	P4,000	P12,000	P(4,000)	P6,000	P(8,000)
Inventories	8,000	(8,000)	14,000	0	(10,000)	16,000
Accounts payable	0	2,000	(6,000)	2,000	(4,000)	(4,000)

 

The cash balance on January 1, 2021 is expected to be P46,000. New equipment costing P86,000 is to be purchased for cash in April. An investment in BSP bonds in the amount of P50,000 is to be made in February. Each month, William plans to withdraw P15,000 for his personal use. 

 

REQUIREMENT: 1. William hopes to have a cash balance of no less than P40,000 at all times. Can this be accomplished without securing a bank loan or obtaining cash from other sources. 

 

Addition Information:

	Jan.	Feb.	Mar.	Apr.	May	June
Prepaid operating expenses	3,000	2,000	4,000	(3,000)	(2,000)	(4,000)
Accrued operating expenses	5,000	6,000	7,000	(5,000)	(6,000)	(7,000)

            

                                                                               Kentucky Company

                                                                                  Cash Budget

                                                                  For the First Six Months of 2021

	Jan.	Feb.	Mar.	Apr.	May	June
Cash balance, beginning
Add: Cash receipts
Collection of accounts (Schedule 1)
Totals
Less: Cash payments
Accounts payable (Schedule 2 & 3)
Expenses
Purchase of equipment
Purchase of bond investment
Withdrawal for personal use
Totals
Cash balance, ending
Less: Excess cash on hand
Add: New borrowings
Cash balance, ending
Cumulative investments
Cumulative borrowings