The trial balance of Xyz Corporation prior to the closing of its accounts for the fiscal year ended September 30, 2021 is as follows:
Your examination of the company's accounts has indicated the need for adjustments based on the following information:
1. The Cash account includes a customers check for P15,000 deposited on September 25, 2021 but returned by the bank on September 29, 2021 for lack of countersignature.
No entry was made by the company for the
return of the check or its redeposit on October 5, 2021.
2. Based on assessment of expected credit losses and grouping receivables with similar characteristics, the allowance for doubtful accounts should be adjusted to 5% of the customers' outstanding balance as of September 30, 2021.
3. A physical inventory taken of the merchandise stock as of the close of the fiscal year amounted to P601,200.
4. A purchase of merchandise, FOB shipping point, for which goods costing P50,000 were in transit on September 30, 2021, was neither taken as a liability nor included in the inventory on that date.
5. Goods received on consignment, still unsold, were included in the inventory at the agreed selling price of P30,000,
6. The merchandise inventory at September 30, 2020 was correctly stated.
7. On July 1, 2021, equipment acquired on October 1, 2018 with a carrying value of P32,000 on September 30, 2020, was sold for P35,000 cash. The sales proceeds were credited to the furniture and equipment account.
8. Depreciation for the fiscal year 2020-2021 has not yet been recorded.
Depreciation rate is 10%, except for right-of-use assets.
9. An Insurance policy was renewed on the inventory and equipment on April
1, 2021 with the annual ρrémíùm of P8,400 pald on that date.
10. The rent expense account represents annual rent ρáíd for store and office space covering the period November 1, 2020 through October 31, 2021.
The lease term of five years commences on November 1, 2020.
The
lessor's implicit rate is unknown, but XYZ's incremental borrowing rate at the lease commencement was 10%. Straight-line depreciation is used for right-of-use assets.
11. The one-year Note Payable of P100,000 was discounted at the bank at
12% on August 31, 2021.
12. The Goodwill account was set up by a credit to Retained Earnings under a resolution of the board of directors.
| Debit | Credit | |
| Cash | 225,000 | |
| Accounts receivable | 936,000 | |
| Allowance for doubtful accounts | 31,900 | |
| Notes receivable | 155,000 | |
| Merchandise Inventory | 568,900 | |
| Furniture and equipment | 618,000 | |
| Accumulated depreciation | 187,500 | |
| Goodwill | 300,000 | |
| Accounts payable | 536,000 | |
| Notes payable | 100,000 | |
| Ordinary Share Capital | 1,000,000 | |
| Retained earnings | 552,500 | |
| Sales | 3,728,200 | |
| Sales returns and allowances | 47.600 | |
| Purchases | 2,159,300 | |
| Purchase returns and allowances | 36,500 | |
| Advertising expense | 96,100 | |
| Sales salaries | 288,500 | |
| Commission expense | 152.000 | |
| Miscellaneous selling expense | 29,900 | |
| Rent expense | 130,000 | |
| Office salaries | 197,200 | |
| Light and water | 15,000 | |
| Insurance expense | 10,800 | |
| Taxes and licenses | 47,800 | |
| General expenses | 163,400 | |
| Interest expense | 41.200 | |
| Interest income | 9,100 | |
| 6,181,700 | 6,181,700 |
Your examination of the company's accounts has indicated the need for adjustments based on the following information:
1. The Cash account includes a customers check for P15,000 deposited on September 25, 2021 but returned by the bank on September 29, 2021 for lack of countersignature.
No entry was made by the company for the
return of the check or its redeposit on October 5, 2021.
2. Based on assessment of expected credit losses and grouping receivables with similar characteristics, the allowance for doubtful accounts should be adjusted to 5% of the customers' outstanding balance as of September 30, 2021.
3. A physical inventory taken of the merchandise stock as of the close of the fiscal year amounted to P601,200.
4. A purchase of merchandise, FOB shipping point, for which goods costing P50,000 were in transit on September 30, 2021, was neither taken as a liability nor included in the inventory on that date.
5. Goods received on consignment, still unsold, were included in the inventory at the agreed selling price of P30,000,
6. The merchandise inventory at September 30, 2020 was correctly stated.
7. On July 1, 2021, equipment acquired on October 1, 2018 with a carrying value of P32,000 on September 30, 2020, was sold for P35,000 cash. The sales proceeds were credited to the furniture and equipment account.
8. Depreciation for the fiscal year 2020-2021 has not yet been recorded.
Depreciation rate is 10%, except for right-of-use assets.
9. An Insurance policy was renewed on the inventory and equipment on April
1, 2021 with the annual ρrémíùm of P8,400 pald on that date.
10. The rent expense account represents annual rent ρáíd for store and office space covering the period November 1, 2020 through October 31, 2021.
The lease term of five years commences on November 1, 2020.
The
lessor's implicit rate is unknown, but XYZ's incremental borrowing rate at the lease commencement was 10%. Straight-line depreciation is used for right-of-use assets.
11. The one-year Note Payable of P100,000 was discounted at the bank at
12% on August 31, 2021.
12. The Goodwill account was set up by a credit to Retained Earnings under a resolution of the board of directors.