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LARES Company
Working Balance Sheet
December 31, 2005
- -
Per Books Adjustments Per Audit
Assets
Current assets
Cash 132,700 1 (5,200) 143,400
2 35,000
3 (500)
4 (16,000)
5 (2,600)
Accounts receivable 442,500 4 16,000 403,400
6 (12,000)
7 (1,200)
8 (18,000)
9 (1,500)
10 15,000
11 (16,400)
12 (21,000)
60 days old and below 238,500 6 (12,000) 205,800
7 (1,200)
8 (18,000)
9 (1,500)
61 to 90 days 117,200 4 16,000 133,200
Over 90 days 85,400 12 (21,000) 64,400
Allowance for doubtful accounts (15,000) 10 (15,000) (7,942)
12 21,000
13 1,058
Interest receivable - 22 6,000 6,000
Advances to officers and employees - 5 2,600 19,000
11 16,400
Inventory 367,200 8 13,000 384,800
14 1,600
15 (14,000)
16 17,000
TOTAL 927,400 948,658
Non-current assets
Available for sale securities 596,000 17 (6,000) 100,000
18 (490,000)
Investment in Associate - 18 490,000 516,000
19 10,000
20 50,000
21 (34,000)
Equipment 705,000 23 (40,000) 605,000
24 (55,000)
25 (5,000)

Accumulated depreciation (481,000) 23 30,000 (371,000)

24 60,000
26 20,000
TOTAL 820,000 850,000

TOTAL 1,747,400 1,798,658

Current Liabilities
Accounts payable 168,175 2 35,000 220,175
16 17,000
Accrued expenses 28,600 27 32,000 60,600
Bank overdraft - -
Customers' credit balance - -
Interest payable - 29 48,000 48,000
196,775 328,775
Noncurrent Liabilities
Bonds payable 416,000 28 (16,000) 400,000
Discount on bonds payable - 28 (24,000) (23,227)
30 773
416,000 376,773
Total liabilities 612,775 705,548

Stockholders equity:
Common stock, P10 par 670,000 31 (20,000) 650,000
Stock dividends distributable - 32 64,500 64,500
Additional paid-in capital 80,000 31 20,000 132,250
32 32,250
Retained earnings 384,625 from WPL 252,360
Treasury stock 17 (6,000) (6,000)

1,134,625 1,093,110

TOTAL 1,747,400 1,798,658

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LARES Company
Working Profit and Loss
For the year ended December 31, 2005

Per Books Per Audit

Net sales 1,053,500 6 (12,000) 1,022,300
7 (1,200)
8 (18,000)
Cost of sales 525,400 8 (13,000) 524,800
14 (1,600)
15 14,000

Gross profit 528,100 497,500

Other income 42,450 21 (34,000) 19,450

22 6,000
24 5,000
Investment income - 20 50,000 50,000
-

Total 570,550 566,950

Expenses
Operating expenses 276,900 1 5,200 300,042
3 500
9 1,500
13 (1,058)
25 5,000
26 (20,000)
27 32,000
Other expenses - 23 10,000 10,000
Finance cost - 28 (40,000) 8,773
29 48,000
30 773
276,900 318,815

Net income before income tax 293,650 248,135

Retained earnings, beg. 90,975 19 10,000 100,975

Dividends declared 32 (96,750) (96,750)
Retained earnings, end. 384,625 to WBS 252,360

SUGGESTED ANSWERS TO MULTIPLE CHOICE

1 - 40. D
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LARES Company
Summary of Adjusting Journal Entries
December 31, 2005
DEBIT CREDIT

1 Operating expenses 5,200

Cash 5,200
Unreplenished vouchers (6,400-1,200)

Adjusted balance of petty cash (10,000 - 5,200) 4,800

2 Cash 35,000
Accounts Payable 35,000
Unreleased check

3 Operating Expenses (Bank service charge) 500

Cash 500
Unrecorded BSC

4 Accounts receivable (61-90 days) 16,000

Cash 16,000
Post dated check

5 Advances to officers and employees 2,600

Cash 2,600

Book Bank
Unadjusted balances 137,700 124,200
Bank service charge 3 (500)
Post dated check 4 (16,000)
Outstanding checks (14,100)
Undeposited collections 8,500
Corrected balances 121,200 118,600
Unlocated difference - cash shortage 5 (2,600)
Adjusted balances 118,600 118,600

6 Net sales 12,000

Accounts receivable (<60 days) 12,000
Unrecorded credit memo

7 Net sales 1,200

Accounts receivable (<60 days) 1,200
Unrecorded employee discount

8 Net sales 18,000

Accounts receivable (<60 days) 18,000
Inventory 13,000
Cost of sales 13,000
Goods out on consignment erroneously billed

9 Operating expenses 1,500

Accounts receivable (<60 days) 1,500
Unrecorded freight-out

10 Accounts receivable 15,000

Allowance for doubtful accounts 15,000
Erroneous recording of recovery from written off account

11 Advances to officers and employees 16,400

Accounts receivable 16,400
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LARES Company
Summary of Adjusting Journal Entries
December 31, 2005
DEBIT CREDIT

12 Allowance for doubtful accounts 21,000

Accounts receivable (>90 days) 21,000
Accounts that should be written off

13 Allowance for doubtful accounts 1,058

Operating expenses 1,058

60 days old and below 205,800 1% 2,058

61 to 90 days 133,200 2% 2,664
Over 90 days 64,400 5% 3,220
Required allowance 7,942
Balance per books before this adjustment (15,000+15,000-21,000) 9,000
Adjustment 1,058

14 Inventory 1,600
Cost of sales 1,600
Includible goods excluded from physical count

15 Cost of sales 14,000

Inventory 14,000
Goods on consignment presumed included in physical count

16 Inventory 17,000
Accounts payable 17,000
Unrecorded purchases, FOB shipping point

17 Treasury stock 6,000

Available for sale securities 6,000

18 Investment in Associate 490,000

Available for sale securities 490,000
Reclassification of AFS to Investment in Associate

19 Investment in Associate 10,000

Retained earnings, beg (100,000 x 10%*) 10,000
Retroactive application of equity method; *(34,000/170,000 x 1/2)

20 Investment in Associate 50,000

Investment income (250,000 x 20%) 50,000

21 Other income (Dividend income) 34,000

Investment in Associate 34,000

22 Interest Receivable 6,000

Other income (Interest income) (P100,000 x 12% x 6/12) 6,000

23 Other expenses (Loss on disposal of assets) 10,000

Accumulated depreciation (50,000 - 20,000) 30,000
Equipment 40,000

24 Accumulated depreciation 60,000

Equipment 55,000
Other income (Gain on disposal of assets) 5,000
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LARES Company
Summary of Adjusting Journal Entries
December 31, 2005
DEBIT CREDIT

25 Operating expenses 5,000

Equipment 5,000

26 Accumulated depreciation 20,000

Operating expenses 20,000

Beginning balance [(640,000 - 50,000 - 60,000) x 20%] 106,000

Equipment sold (50,000 x 20% x 3/12) 2,500
Equipment traded-in (remaining balance) 5,000
New equipment (75,000 x 20% x 6/12) 7,500
Depreciation expense per audit 121,000
Depreciation expense per books 141,000
Adjustment 20,000

27 Operating expenses 32,000

Accrued expenses 32,000

28 Bonds payable 16,000

Discount on bonds payable [400,000 - (416,000 - 40,000)] 24,000
Finance Cost (Interest expense) (400,000 x 12% x 10/12) 40,000

29 Finance Cost (Interest expense) (400,000 x 12% x 12/12) 48,000

Interest payable 48,000

30 Finance Cost (Interest expense) 773

Discount on bonds payable 773
Discount amortization using effective interest method

Effective rate (376,000 x 14% x 2/12) 8,773

Nominal rate (400,000 x 12% x 2/12) 8,000
773

31 Common stock 20,000

Additional paid-in capital [10,000 x (12-10)] 20,000
 A B C D
1 Cash on hand and in bank 38,700 35,002 34,402 35,502
2 Notes receivable 4,000 4,500 5,000 5,500
3 Accounts receivable 36,000 40,000 42,000 38,000
4 Allow. for doubtful accounts 1,800 2,000 2,100 1,900
5 Accounts receivable-net 40,100 38,000 40,000 39,900
6 Accounts receivable-others 2,750 - 500 1,000
7 Advances to officers and employees 3,840 1,000 2,840 3,740
8 Marketable securities 13,000 10,750 8,500 4,250
9 Allow. for decline in MV of marketable sec. 1,375 250 1,125 -
10 Inventories 15,400 20,000 24,600 16,000
11 Prepayments 100 500 - 900
12 Total curent assets 111,904 113,302 113,950 112,802
13 Property, plant and equipment 990,000 1,910,000 910,000 940,000
14 Accumulated depreciation 346,000 344,000 350,000 356,000
15 PPE-net 566,000 1,566,000 606,000 584,000
16 Total assets 677,904 713,950 679,302 678,802
17 Accounts payable 600 4,000 5,200 2,800
18 Accrued expenses 2,800 4,000 5,200 1,200
19 Total current liabilities 2,800 5,200 4,000 1,200
20 Bonds payable 397,000 400,000 363,000 360,000
21 Bond discount 37,000 3,000 43,000 40,000
22 Total liabilities 400,000 405,200 363,000 368,200
23 Common stock 311,102 200,000 108,750 308,750
24 Retained earnings, end. 125,104 108,750 111,102 94,750
25 Net sales 944,000 948,000 950,000 952,000
26 Cost of sales 669,600 665,000 661,000 664,400
27 Gross Profit 280,400 282,400 285,000 287,000
28 Operating expenses 270,798 264,798 270,000 264,000
29 Operating income 23,602 15,000 17,602 18,400
30 Other income 5,000 7,250 5,500 7,750
31 Other charges 6,500 9,000 6,000 3,000
32 Net income 16,352 11,000 17,000 14,000
33 Gain on sale of Maretable securities-SMC 1,000 2,250 1,750 -
34 Bond discount amortization 1,000 4,000 3,000 -
35 Dividend income-SMC Co. common 1,000 500 2,000 1,500