Problem 1. The interest expense account in the general ledger is shown below. The account's lettered postings
Question:
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:
- Identify what kind of journal entries the lettered posting came from? Which one is a reversing entry, current entry, adjusting entry, and closing entry?
- 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 |
Financial and Managerial Accounting the basis for business decisions
ISBN: 978-1259692406
18th edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello