63

CASH BASIS

Problem 63-1 (AICPAAdaPted)

The following information pertains to Spee Company's sales
curent year:
Cash sales
Gross
Returns and allowances
Credit sales
Gross 3
Discounts
On January I, customers owed Spee PI ,000,000' On December
Spee P750'000- Spee-uses direct writeoff med
"mi"..*'"*"a
foi bad debts. No bad debts were recorded in the current year'- !
tt" U*it ofa."ountins what amount ofsales revenue should
"ustfor the current Year?
report
l. s,000,000
b. 4,750,000
c. 4,250,000
d. 1,900,000

Solution 6i-1 Answer a

Accounts receivable - January 1 1,000,0fl
Add: Credit sales 3,000,0fl

Total 4,000,o(tr
Less: Accounts receivable - December 31 7s0,000
Sales discounts 150,000 900,ofl

Collections 3,100,0fl
Cash sales - net (2,000,000 - 100,000) 1,900,0fl

Total $ales - cash basis 5,000,00

Under the cash basis, sales revenue includes cash sales anr

collections from customers.

1086
 Problem 63-2 (AICPAAdapted)
Zeta Company reported sales revenue ofP4,600,000 in its income
statement for the year ended December 3 l, 201 1 . Additional information
is as follows:
12l3u20t0 t2l3uzall
Accounts receivable 1,000,000 1,300,000
) Allowance for uncollectible accounts 60,000 110,000

ns to Spee Company's sales for the Zeta wrote offuncollectible accounts totaling P20,000 during 20 I I .
Under the cash basis ofaccounting, what amount should be reported
as sales revenue for 201 1?
2,000,000
100,000 a. 4,900,000
b. 4,350,000
3,000,000 c. 4,300,000
150,000
d. 4,280,000
pee P1,000,000. On December 31,
. Spee uses direct writeoff method Solution 63-2 Answer d
recorded in the current year. Under
amount ofsales revenue should Spee Accounts receivable - December 31, 2010 1,000,000
Add: Sales 2011 4,600,000

Total 5,600,000
Less: Accounts receivable - l2l3ll201l 1,300,000
Writeoff 20,000

Collections - cash basis sales revenue 4,280,000

1,000,000 Problem 63-3 (AICPAAdapted)

3,000,000 During 2011, Kew Company had P200,000 in cash sales and
4,000,000 P3,000,000 in credit sales. The accounts receivable balances were
:ember 3l 750,000 P400,000 and P485,000 at December 31, 2010 and 2011,
150,000 900,000
respectively. If Kew desires to prepare a cash basis income
3,100p00 statement, what amount should be reported as sales for 2011?
0,000) 1,900,000
s,000,000 a. 3,285,000
b. 3,200,000
revenue includes cash sales and c, 3,115,000
d. 2,915,000

r086 1087
Solution 63-3 Answer c
Prob
Accounts receivablc - Deccnrbcr 31, 2010 400,000
Credit sales Jacqu
3,000,000
Total Accol
3,400,000
Less: Accounts receivable - December 31, 201I
485,000
Allou
Nct ar
Collections 2,915,000
Cash sirles
200,000 Durin
Total sales - cash basis 3,r 15,000 Accou
Cash r
Problem 63-4 (ACP)
Sales r
Elaine Company experienced the following changes in selected Bad dr
accounts for the current year:
AccruaI sales At the
5,000,000
Accounts receivable: accour
January I 800,000 accour
December 3l 500,000
Advances from customers: Under
January 1
300,000
the cur
December 31 400,000 a. 2,7
What total amount of cash was received from customers during
the b. 2,2
year? c. 3,5
a. 5,400,000 d. 3,3
b. s,300,000
c. 4,800,000 Solutio
d. 4,600,000
Accoun
Sales or
Solution 63-4 Answer a
Total
Accrual sales 5,000,000 Accoun
Accounts receivable - January I
800,000 Accoun
Advances from customer - December 3l 400,000
Collecti
Total
6,200,000 Cash sa
Less: Accounts receivable - December 3l 500,000
Advances from customers - January 1 300,000
Total sa
800,000
Cash received from customers
5,400,000

1088
 Problem 63-5 fl1"t)
l,2010 400,000 Jacqueline Company began the current year with the following:
3,000,000
Accounts receivable 1,000,000
3,400,000 Allowance for doubtful accounts 80,000
rber 31, 2011 485,000 Nct accounts receivable 920,000
2;915,000
200,000 During the current year, the following events occurred:
Accounts written off 120,000
l,l119oo
Cash sales 500,000
Sales on account 3,000,000
Bad debt expense recognized 200,000
: following changes in selected
At the end of the current year, the entity showed a balance rn
s,000,000 accounts receivable ofP I ,680,000 before the allowance for doubtful
accounts.
800,000
s00,000 Under the cash basis, what amount should be reported as sales for
the current year?
300,000
400,000 a. 2,700,000
reived from customers during the
b. 2,200,000
c. 3,500,000
d. 3,320,000

Solution 63-5 Answer a

Accounts receivable - January I 1,000,000
Sales on account 3,000,000

Total 4,000,000
5,000,000 Accounts receivable - December 3l (1,680,000)
800,000 Accounts written off ( 120p00)
rber 3 I 400,000 Collections of accounts receivable 2,200,000
6,200,000 Cash sales 500,000
mber 31 500,000 Total sales - cash basis 2,700,000
anuary i 300,000 800,000
5,400,000

88 1089
-
 Probtem 63-6 (IAA)
Royal Company provided
the fi:llowing data
for the curent year
Sales
Cost ofgoods sold t0,000.q
Operating expenses 5,300.of,
3,800.m
Prepaid operating
December 3l Januar-r I
expenses
Accounts payable 1,000,000 700.0D
Inventory r,350,000 l,2O0,o
Accounts receivable r,)(r0,000 2,too.on
r,400,000 1,375.m
Under cash basis, what
amoufllI should be
me current year? reported as purchases
fr
a. 5,550,000
b. 5,700,000
c. 5,850,000
d.5,150,000

Solution 63_6 Answer

a
Inventory Januarv I
-
Purchases under 2,t00.o
acciual basis (SeUEEZE)
available for sale 5.700.m
_Goods
lnventory : December 7,800-0
3l
Cost ofgoods sold
5,300.(D
Accounts payable _ Januarv
I
rurchases _ accrual t,200.0
basis
Total 5,700-r
Accounts payable _ 6,9@,o
December 3l
Cash paid for purchases _ I
cash basis
5,550-o

1090
 Problem 63-7 (AICPAAdapted)
Under Harlett Company's accounting system, all insurance
ng data for the current year: premiums paid are debited to prepaid insurance. For interim
10,000,000 financial reports, Harlett makes monthly estimated chatges to
5,300,000 insurance expense with credits to prepaid insurance.
3,800,000 Prepaid insurance on January l, 2011 210,000
December 31 January I Charges to insurance expense during 201 I
(including a year-end adjustment ofP35,000) 875,000
1,000,000 700,000 Prepaid insurance on December 31,2011 245,000
i,350,000 1,200,000
2,500,000 2,100,000 What is the insurance premium paid during 201 1?
1,400,000 r,375,000 a. 910,000
b. 875,000
rld be reported as purchases for c. 840,000
d. 665,000

Solution 63-7 Answer a

Insurance expense 875,000
Prepaid insurance - December 31 245,000
Prepaid insurance - January 1 G]9,099)
Insurance premium paid 910,000
2,r00,000
)UEEZE) s.700.000 Problem 63-8 (IAA)
7,800,000 During the current year, Seawall Company reported total operating
er00499 expenses of P3,200,000, consisting of P1,000,000 depreciation,
5,300,000 P700,000 insurance and P1,500,000 salaries. The prepaid insurance
is P I 50,000 on January I and P200,000 on December 3 1 . The accrued
1,200,000 salaries payable totaled P120,000 on January I and P100,000 on
5,700,000 December 3 1. What total amount was paid for operating expenses?
6,900,000 a. 3,270,000
cll9!gq) b. 2,270,000
sls s,5s0,000 c. 2,130,000
d. 2,230,000

1091
 Solution 63-8 Answer b
Operating expenses per book 3,200,000
Depreciation (1,000,000)
Prepaid insurance - December 3 I 200,000
Prepaid insurance - January I ( 1s0,000)
Accrued salaries payable - December 3l ( 100,000)
Accrued salaries payable - January I 120,000
Cash paid for operating expenses 2,270,000

Problem 63-9 (PHILCPAAdapted)

Data below were taken from the comparative trial balance of
Miramar Company. The books are kept on the accrual basis. The
gxperses included depreciation ofp200,000 and amortization of
P100,000.
201I 201 0
Accounts receivable 4,500,000 5,000,000
Interest receivable
Inventories
20,000 50,000
8,000,000 9,000,000
Prepaid insurance
Accounts payable
100,000 50,000
7,500,000 7,000,000
Accrued expenses 500,000 300,000
Net sales 2s,000,000
Interest revenue 150,000
Cost ofgoods sold 15,000,000
Insurance expense 1,000,000
Other expenses 2,000,000
What total amount was paid for expenses during the current year?
a. 2,150,000
b. 2,850,000
c. 2,700,000
d. 3,1s0,000

1092
 Solution 63-9 Answer a
3,200,000
Insurance expense
(1,000,000) 1,000,000
Other expenses 2,000,000
200,000
( 1s0,000)
Depreciation ( 200,000)
r 3l ( i00,000)
Amortization
Prepaid insurance - 201 I
( 100,000)
120,000 100,000
Prepaid insurance - 2010 ( s0,000)
2,270,000 Accrued expenses - 201 I
Accrued expenses - 2010
( 500,000)
300,000
Cash paid for expenses 2,550,000
lmparative trial balance of
3pt on the accrual basis. The Problem 63-10 (PHILCpAAdapted)
200,000 and amortization of
Under the accrual basis, rental income of Hamtikan Company
for
the cunent year is P600,000. Additional information
2011 regarding rental
2010 income is as follows:
4,500,000 5,000,000
Unearned rental income, January I
20,000 50,000 50,000
8,000,000 Unearned. rental income, December 3 I
9,000,000 75,000
100,000 50,000
Accrued rental income, January I
30,000
7,500,000 7,000,000 Accrued rental income, December 3 I 40,000
500,000 300,000
What total amount of cash was received from rental in the
25,000,000 current
150,000 year?
15,000,000
a. 585,000
1,000,000
b. 5,000
61
2,000,000
c. 625,000
s during the current year? d. 655,000

Solution 63- l0 Answer b

Rental income - accrual basis
600,000
Unearned rental income Januarv I (
- 50,000)
Unearned rental income December 3l
- 75,000
Accrued rental income - Januarv I
30,000
Accrued rental income - December 3l
(l9,0oo)
Rental received - cash basis 615,000

1093
 Probtem 63_ll (AICPAAdapted)
On February I of the cu

*itr*flrgt,frly*flffiipffi
;'{.,,.ffi f.;.",#.i,td"15j;i,r.:"i,,ffi lil,*m",-"*
a; 100,000
b. 300,000
c. 600,000
d. 700,000
Solution 63- I I Answer
c
Capital - Februarv I
Cash basis inconr for 200,000
February and March
Total 500,000
Withdrawals during 700,000
March
Capital-March3l (100,000)

probtem 63-12 -qA{A

(pHILCpAAdapted)

*gms*ffi
a. 4,000.000
u. r,soo,ooo
-r<etmsonDecember:l,zoil:

c.4,150,000
d.4,r00,000

1094
 b
d) Solution 63-12 Answer
3,so0poo
t year,-Tory began a service Capital - JanuarY I 600,000
sh investment ofP200,000. The Cash basis net income
4,100,000
00 of service in February and Total ( 200,000)
h. The proprietorship incurred Drawings
rary which were paid in April. 3,900,000
Capital - December 31
000 against the capital account.
rl statements for the two months Problem 63-13 (IAA)
r the cash basis of accounting, from the records of Katcelynne
d as capital? The following data were taken
companY: 2,5oopoo
Cash sales 850,000
Sales on account 1,700P00
Cash Purchases 400;000
Credit Purchases 750,000
Expenses Paid 250,000
Accounts receivable - J:"uu1l-,, 300,000
200,000
Accounts receivable-- December
Jl iiO,OOO
nd March 500,000
Accounts payable - J:nrut{ 1_ 200,000
700,000 Accounts payable - December ",
rr 500,000
q!q!00) Inventory- January I
^.
lnventory - December Jl L^_rr
600,000
600,000
Accrued expenses -^December.rj
I 20,000
30,000
Prepaid expenses - December
:r
1,000,000
Equipment -.December Jl
ted)
40,000
chased the net assets of Alador
br P3,500,000, and commenced lffi:::ff:iJffre-Januarv I 31 1o'ooo
2o'ooo
y, a sole pr6prietorship. The assets
'50,000 and a market value of
ilffi;;ie - December The
was acquiredfor P200'000'
rsh basis financial statements for On July l, 2011' an equipment year'
to be paid after one
rted revenue in excess ofexpenses i"r., J*i'so,oriO down and isthel0balance
years with no residual value'
during the current year totaled The useful life of equipment
ancial statements, what amount cash basis?
What is the net income under
.eims on December 31, 201 1?
a. 550,000
b. s70,000
c. 540,000
d. 640,000

109s
94
 Solution 63-13 Answer a
Sales on account
Accounts receivable _ January 850,000
I
Accounts receivable _ December 250,000

Collections from customers

3l ( 300.000)

Cash sales 800,000

2,500.000
Total sales - cash basis
llqgga
Credit purchases
Accounts payable _ Januarv I 400,000
Accounts payable _ Decemier 1s0,000
3I
(_2p0,99Q)
Pa)rrnents of accounts payable
Cash purchases 3s0,000
r,700,000
Total purchases
- cash basis
2,0s0,000
Depreciation on equipment
.' Jq,i;;#;;#ilr"1,,fff ,,*,,,
on J
o"o1^1'^"1 80,000
91
(200,000/ t0x6/12)
10,000
Total depreciation
2qq99
Sales
Cost of sales: 3,300,000
Inventory _ Januarv I
500,000
Purch ases
2,050,000
Goods available for sale
2,550,000
Inventory - December 3l
( 600,000) 1,950,000
Gross income
Expenses paid 1,350,000
Depreciation ( 750,000)
Interest received ( 90,000)
40.000
Net income - cash basis
550,000

1096