Problem 6: RED Co.

Trace the effects (+ or -) on the different balance sheet and income statement accounts of the following transactions. Prepare a balance sheet and income statement in proper form for the year 2017. Balance sheet as of Dec 31, 2016 is given below:

RED Co.
Balance Sheet
As of Dec. 31, 2016
Assets		Liabilities and Equities
Cash	P10,000	Accts. Payable	P 20,000
Accts. Receivables	5,000	Bank Loan	15,000
Inventory	15,000	Common Stocks	100,000
Land	50,000	Retained Earnings	55,000
Equipment	20,000
Building	100,000
Acc. Depn	(10,000)
Total	P190,000	Total	P190,000

Transactions during the year 2017 are as follows:

1. Office equipment was purchased on credit for P10,000.
2. Merchandise worth P15,000 was sold for P20,000 with customer paying in cash.
3. RED bought additional merchandise for P50,000 on credit.
4. The company paid P20,000 for salaries.
5. RED sold goods costing P50,000 for P 70,000, 50% paid in cash and 50% on credit.
6. RED collected P30,000 from its customers.
7. Depreciation for 2017 amounted to P 15,000.
8. Inventory at the end of 2017 amounted to P20,000 (all paid for in cash).
9. The company pay 30% of its net income as income tax.
10. Other expenses amounted to P10,000 paid for in cash.

Format of a Balance Sheet:

Balance Sheet

As of

Assets		Liabilities
Current Assets:		Current Liabilities:
Cash	xxx	Accounts Payable	xxx
Accounts Receivable	xxx	Notes Payable	xxx
Inventory	xxx	Accrued Expenses	xxx
Prepaid Expense	xxx	Deferred Income	xxx
Fixed Assets:		Long Term Debt	xxx
Land	xxx
Building	xxx	Owners' Equities
Less: Acc'd Depreciation	(xxx)	Capital Stock	xxx
Equipment	xxx	Other Paid-in-Capital	xxx
Less: Acc'd Depreciation	(xxx)	Retained Earnings	xxx
Total Assets	xxx ----	Total L. and O. E.	xxx ----

Format of an Income Statement:

Income Statement

For the period ended

Sales		xxx
Cost of Goods Sold		(xxx)
Gross Margin		xxx
Operating Expenses
Advertising Expenses	xxx
Commission Expenses	xxx
Travelling Expenses	xxx
Representation Expenses	xxx
Depreciation	xxx
Utilities	xxx
Taxes	xxx	(xxx)
Operating Income		xxx
Income Taxes		(xxx)
Net Profit After Taxes		xxx
Add: Retained Earnings, Beg		xxx
Less: Dividend Payments	xxx
Retained Earnings		xxx

Optional