On January 01, 2020 Mr. A started business (A’s Store) by investing cash of P 795,075 and other
transactions for the year are as follows:
1/1
Purchase Furniture costing P 80,000 for cash.
1/8
Purchase Goods for Cash P 260,000 and for Credit P 300,000 from B’s Retail Store terms 2/10
n/30 , FOB Shipping Point.
1/10 Purchase additional Goods on credit for P 50,000 from C’s Store terms n/30, FOB Destination.
Paid freight on purchase on January 8 amounting to P 9,000.
1/12 Paid freight on purchase on January 10 amounting to P 1,000.
1/15 Returned P 9,000 of purchased merchandise to C’s Store due to substandard quality.
Paid B and C.
4/1
Purchase Office Equipment for P 50,000 by issuing an 8% interest bearing note with maturity on
April 1, 2022. Principal and interest are both payable on maturity date.
6/15 Owner withdrew of worth P 50,000 for personal use.
11/30 Monthly salaries of P 5,000 was paid up to November.
12/31 Total Sales amounted to 600,000, of which 80% is via credit with terms 3/10, 2/15, n/30 and the
remaining is thru cash. Half of the customers who purchased via credit paid 10 days after the
sale, 15% paid 15 days after the sale and 10% did not take the discount and remains outstanding
as of the year end. Cost of Goods Sold amounted to P 354,000. Freight on sale was paid by A’s
Store amounting to P 10,000, Terms: FOB Destination.
Customers who purchased via cash were refunded for P 10,000.
25% of the credit customers defaulted on their payment at due date and instead issued a note
to A’s Store.
Purchased additional merchandise from C’s Store amounting to P 10,000 on credit to meet
expected sales level for next year.
Other Expenses that were paid are listed as follows
Advertising
P 12,000
Rent
P 60,000
Insurance
P 24,000
Light, water and Electricity
P 36,000
The following adjustment entries are deemed necessary:
[a] Merchandise Inventory on December 31, 2020 amounted to P 314,000.
[b] 1-year insurance premium was paid on July 1, 2020.
[c] Furniture and office equipment are to be depreciated on a straight-line bases on 5 and 8 years
respectively with no salvage value.
[d] The note issued to A’s Store dated August 1, 2020 bears an interest of 12%.
[e] Salaries were unpaid for December.
[f] Before the books were closed, A’s Store received an advanced payment from customer amounting to
P 50,000.
[g] Accounts Receivable is 90% collectible.