Some expenses for December 1995 were paid in January 1996.

These are as follows:

Electric Bills
P 36,700
Commission of Sales agents
28,500
Telephone charges
21, 250
Minor repair of delivery equipment
10,670
Water Bills
9,380
Total
P 106,500
Ayala Merchants obtained a one-year loan from Chartered Bank amounting to
P 1.3 million at an interest of 16% per annum on October 16, 1995. Accrued interest
on this loan was not taken up at year-end.
The company also offered maintenance service contracts on an annual basis.
Cash receipts from such contacts amounted to P 320,000, P75, 000 of which
is effective from May 1, 1995 to May 1 1996 and the balance is from September 1,
1995 to September 1, 1996. Said amount was credited to unearned service income.
No adjustment has yet been booked as of year-end.
On May 1, 1995, Ayala Merchants issued became involved in a tax dispute
with the BIR pertaining to 1993 income tax. In December 1995, an amount of P
250,000 was assessed against the company by the BIR. The Legal counsel of Ayala
Merchants strongly feels that the said assessment will have to be paid by the
company. (Disregarded effect on income tax)
A review of the minutes of meeting showed that a 10% cash dividend was
declared to stockholders of records as of December 15, 1995, payable on January
31, 1996.
AYALA MERCHANTS CORPORATION
WORKING BALANCE SHEET
DECEMBER 31, 1995
PER BOOKS AUDIT ADJUSTMENTSFINAL
BALANCE
---------------

-----------------------------------

-----------CURRENT ASSETS
Petty cash funds
30,000
Cash
528,000
Marketable securities
251,090
Allowance for decline in
Value of securities
(9,270)
Accounts Receivable- Trade
1,809,330
Allowance for doubtful accounts (55,180)
Notes Receivable
650,000

Interest receivable
---------Payments:
Prepaid Advertising 320,000
Prepaid Insurance 245,000
Office Supplies Inventory 210, 000
Prepaid rent
180,500
Total
955,500
Total Current Assets
7,796,920
PROPERTY, PLANT AND EQUIPMENT
Furniture and fixtures
649,200
Delivery equipment
1,385,000
Total
2,034,200
Less: Accumulated Depreciation (588,750)
Net Book Value
1,445,450
Other Assets
274,000
TOTAL ASSETS
9,516,370
CURRENT LIABILITIES
Accounts Payable- Trade 858, 160
Notes Payable
1,650,000
Accrued Expenses
84,520
Interest payable
---Income tax payable
440,164
Dividends payable
---Unearned service income 320,000
Estimated liability for taxes
----_____
Total Current Liabilities
3,352,844
LONG TERM LIABILITIES
Bonds payable
2,500,000
Discounts on bonds payable
(250,000)
Total Long term Liabilities 2,250,000
STOCKHOLDERS EQUITY
Paid-in capital
2,700,000
Retained earnings
1,213,526
Total Stockholders Equity 3,913,526
TOTAL LIABILITIES & STOCKHOLDERS
EQUITY
9,516,370

AYALA MERCHANTS CORPORATION

WORKING PROFIT AND LOSS
Year Ended December 31, 1995
PER BOOKS AUDIT ADJUSTMENTSFINAL
BALANCE
--------------- ---------------------------------------------Sales
6,539,000
Cost of goods sold

(4,017,000)
--------------2,522,000

Gross Profit
Operating expenses

(1,678,500)
---------------843,500

Income from operations

Other Income

726,750

Other Charges

(312,640)
--------------1,257,610

Income before taxes

Provisions for income tax

(440,164)
------------817,446

Net income
Retained earnings, beginning
Cash dividends

396,080
--------------------1,213,526

Retained earnings, end

MULTIPLE CHOICE QUESTIONS:
1. Petty cash
a. P 18,625

b. P 16,130

2. Cash
a. P 261,325

c. P 30,000
c. P 122,425

d. P 528,000

3. Net realizable value of marketable securities

a. P 241,820
b. P 251,090
c. P 245,620

d. P 236,350

4. Accounts Receivable
a. P 1,968,000
d. P 1,806,570

b. P 225,326

d. P 11, 375

b. P 1,809,330

c. P 1,891,770

5. Allowance for doubtful accounts

a. P 44,108
b. P 55, 180
6. Notes and interest receivable
a. P 662,188 b. P 662, 288
650,000
7. Inventories
a. P 3,467,100 b. P3,637,450
390,200
8. Prepaid insurance
a. P224, 583 b. P 204,166
9. Prepaid rent
a. P 70,000

b. None

10.Prepaid advertising
a. P 162,500 b. P 320, 000

c. P 76,320

d. P 65,158

c. P 662, 458

d. P

c. P3, 645,100

d. P3,

c. P245, 000

d. P 214,375

c. P210, 000

d. P140,000

c. 186, 667

d. P 157,500

11.Office supplies inventory

a. P129,250
b. P58,750

c. P180,500

d. P51,250

12.Total prepayments
a. P 487,916 b. P 552,916

c. P 482,916

d. P955,500

13.Total current assets

a. P 7,013,041 b. P6,758,141
6,765.011

c. P6,835,041

d. P

14.Property, plant and equipment

a. P2,034,200 b. P1,452,614
P1,951,440

c. P 1,973,140

d.

15.Accumulated depreciation
a. P519,440
b. P520,526

c. P 588,750

d. P 589,836

16.Accounts payable
a. P942,680
b. P894,160

c. P 978,680

d. P 858,160

17.Notes payable
a. P 1,393,911 b. P1,650,000
18.Interest payable
a. P93,911
b. P50,000
19.Income tax payable
a. P 440,164 b. P 260, 171
906
20.Accrued expenses

c. 1,300,000
c. P 43,911
c. P180, 186

d. P350,000
d. P 55,733
d. P 204,

a. P 84,520

b. P284,931

c. P191,020

d. P106,500

21.Unearned service income

a. P320,000
b. P188,333

c. P131,667

d. 213,333

22.Dividends payable
a. P405,000
b. P270,000

c. P540,000

d. none

23.Total current liabilities

a. P3,742,330 b. P 3,392,330
3,142,330

c. P 3,267,611

d. P

24.Carrying value of bonds payable

a. P 2,500,000 b. P2,283,333
P2,250,000

c. P 2,466,667

d.

25.Retained earnings, end

a. P210,712
b. P 1,213,526

c. P705,922

d. P435,922

26.Sales
a. P 6,543,220 b. P6,612,470
6,469,750

c. P 6,539,000

d. P

27.Cost of goods sold

a. P 4,017,000 b. P 4,118,100
4,187,350

c. P4,009,350

d. P

28.Gross profit
a. P 2, 355,870 b. P 2,425,120
2,522,000

c. P 2,460,400

d. P

29.Operating expenses
a. P 2,148,258 b. P 2,310,758
2,170,758

c. P 1,678,500

d. P

30.Income from operations

a. P. 843,500 b. P182,112

c. P 211,242

d. P 870,875

31.Other income
a. P 858,417

b. P726,750

c. P 739,208

d. P 870,875

32.Other charges
a. P470,417

b. P420,419

c. P312,640

d. P 437,086

33.Income before taxes

a. 514,818
b. P 743,347

c. P1,257,610

34.Net income
a. P309,91`2

c. P 483,176

b. P 334,632

d. P 757,019
d. P 817,446

35.Retained earnings, beginning

a. P396,080
b. P 146,080

c. P250,00

d. P 186,992

ANSWERS / SOLUTIONS
AYALA MERCHANTS CORPORATIONS
WORKING BALANCE SHEET
December 31, 1995
PER BOOKS AUDIT ADJUSTMENTSFINAL
BALANCE
---------------

-----------------------------------

-----------CURRENT ASSETS
Petty cash funds
30,000
16,130
Cash
528,000
Marketable securities
251,090
251,090
Allowance for decline in
Value of securities
(9,270)
(14,740)
Accounts Receivable- Trade
1,809,330
1,891,770
Allowance for doubtful accounts (55,180)
(44,108)
Notes Receivable
650,000
Interest receivable
--12,458
Payments:
Prepaid Advertising 320,000
Prepaid Insurance 245,000
Office Supplies Inventory 210, 000
70,000
Prepaid rent
180,500
Total
955,500
Total Current Assets
7,796,920
6,835,041
PROPERTY, PLANT AND EQUIPMENT
Furniture and fixtures
649,200
649,200

(13,870)
(405,575)

122,425
---

(5,470)
84,440
11,072
--12,458

650,000

(162,500)
(40,834)
(140,000)

157,500
204,166

(129,250)

51,250
482,916

---

Delivery equipment
1,385,000
1,323,940
Total
2,034,200
Less: Accumulated Depreciation (588,750_)
(520,525)
Net Book Value
1,445,450
Other Assets
274,000
TOTAL ASSETS
9,516,370
8,561,656
CURRENT LIABILITIES
Accounts Payable- Trade 858, 160
894,160
Notes Payable
1,650,000
1,300,000
Accrued Expenses
84,520
191,020
Interest payable
---93,911
Income tax payable
440,164
180,187
Dividends payable
---Unearned service income 320,000
Estimated liability for taxes
----_____
250,000
Total Current Liabilities
3,352,844
3,367,611
LONG TERM LIABILITIES
Bonds payable
2,500,000
2,500,000
Discounts on bonds payable
(250,000)
(216,667)
Total Long term Liabilities 2,250,000
STOCKHOLDERS EQUITY
Paid-in capital
2,700,000
2,700,000
Retained earnings
1,213,526
Total Stockholders Equity 3,913,526
TOTAL LIABILITIES & STOCKHOLDERS
EQUITY
9,516,370
8,561,656
AYALA MERCHANTS CORPORATION
WORKING PROFIT AND LOSS
Year Ended December 31, 1995

(61,060)
1,973,140
68,225
1,452,615
274,000

---

36,000
(350,000)
106,500
93,911
(259,977)
270,000
(131,667)
250,000

270,000
188,333

--33,333
2,283,333
--(1,002,814)

210,712
2,910,712

PER BOOKS AUDIT ADJUSTMENTS

ADJUSTED

BALANCE
----------------------Sales
6,612,470
Cost of goods sold
Gross Profit
Operating expenses
(2,310,757)
Income from operations

---------------

----------------------------

6,539,000

73,470

(4,017,000)
--------------2,522,000

(170,350)

(1,678,500)

(4,187,350)
---------------2,425,120

(633,257)

------------843,500

114,363

Other Income
870,875

726,750

144,125

Other Charges
(470,419)

(312,640)

(157,779)

Income before taxes

514,819
Provisions for income tax
Net income

--------------1,257,610
(440,164)
---------------817,446

259,977

(180,187)
------------334,632

Retained earnings, beginning

146,080

396,080

(250,000)

Cash dividends
(270,000)

-----

(270,000)

Retained earnings, end

210,712

------------1,213,526

------------

Audit adjustments
1. Operating expenses (P 18,625- P 4,755)
Petty cash
2. Accounts Receivable
Cash
3. Accounts Receivable
Cash

13,870
13,870
53,700
53,700
31,500
31,500

4. Notes Payable
Other Charges
Cash
5. Cash (P51,450-P15,450)
Accounts Payable
6. Other Charges
Cash
7. Allowance for Doubtful Accounts
Accounts Receivable
76,230
8. Other Charges
Allowance for Decline in value of Securities
Bacnotan Cement
Fil-Estate
Ionics
La Tondena
Selecta
Union Bank

350,000
5,000
355,000
36,000
36,000
1,375
1,375
76,230

5,470
5,470

x P16.00= P56, 000

x 19.75 =
98,750
x 24.00 =
28,800
x 26.00=
26,000
4,000 x 1.20 =
4,800
800 x 27.50 =
22,000
----------Total Market Value
P 236,350

Total Cost
Total Market Value
Required Balance
Balance per Books
Adjustment

3,500
5,000
1,200
1,000

P 251,090
(236,350)
------------14, 740
(9,270)
------------P 5,470

9. Interest Receivable (P650,000 x 15% x 46/360)

Other income
12,458

12, 458