Solution Manual: Chapter 10 Cash to Accrual Basis of Accounting

Chapter 10

Cash Basis to Accrual Basis of Accounting



PROBLEM 1: FOR CLASSROOM DISCUSSION
1. D

2. C

3. C

4.Solutions:
Requirement (a):

Accounts/Trade notes receivable
beg. (0 + 200K) 200,000
Gross credit
Collections on A/R
sales 3,710,000 1,000,000
Collections on trade
Recoveries
10,000 2,000,000 N/R
100,000 Write-offs
20,000 Sales returns
800,000 end. (800K + 0)



Gross credit sales 3,710,000
Sales returns (20,000)
Net sales - accrual 3,690,000


Requirement (b):

Collections on A/R 1,000,000
Collections on trade N/R 2,000,000
Net sales - cash basis 3,000,000


5.Solutions:
Requirements (a) & (b):

1

, Accounts payable
- beg.
COGS - cash 2,000,00 2,800,00
Net purchases (squeeze)
basis 0 0


end. 800,000


Inventory
beg. 200,000
2,800,00 3,000,00
Net purchases 0 0 COGS - accrual basis

- end.

6.Solution:
Prepaid/Accrued
beg. - Prepaid
utilities 100,000 80,000 beg. - Accrued payable

Payments for
utilities 220,00 Utilities expense
(Cash basis) 270,000 0 (Accrual basis)

end. - Accrued 120,00
payable 50,000 0 end. - Prepaid utilities


7.Solution:
Receivable/Unearned
beg. - Rent 1,000,00
receivable 0 600,000 beg. - Unearned rent
Rent income 2,100,00 2,420,00 Collections on rent
(Accrual basis) 0 0 (Cash basis)

end. - Unearned
rent 720,000 800,000 end. - Rent receivable

8.Solution:

Net income under accrual basis ₱ 50,000
(squeeze)
Adjustments:
Depreciation expense ................ ₱ 25,000
Increase in accounts receivable ..... (8,000)
Decrease in merchandise inventory ... 13,000

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