Journalizing Transactions: ABS Co. Receives P2,750,000 on March 1

School: University of the Fraser Valley - Course: ITCE 352 - Subject: Accounting

1 The following are selected accounts coming frorm the adjusted trial balance at the end of 2016. Sales Revenues1,600,000Sales Revenues1,600,000 Rent Income150,000Less: Cost of Sales(800,000) Cost of Sales800,000Gross Profit800,000 Selling Expenses190,000Less: Operating Expenses Administrative Expenses130,000Selling Expenses(130,000) Interest expense25,000Administrative Expenses(190,000) Net Operating Profit480,000 Add: Rent Income150,000 Net Income BEFORE Interest E630,000 Less: Interest Expense(25,000) Net Income BEFORE Tax605,000 Less: Tax, 30%(181,500) Net Income AFTER Tax423,500 a.b.Using Cases A, B, Cshow the equity section of the Statement of Financial Position Case A.The business is owned by a sole proprietor, Artuz. Prior to making the closing entries, Artuz, Capital reflected a credit balance of P500,000 and Artuz, drawings a credit balance of P48,000. This is jewelry store. Sales Revenues1,600,000 Rent Income150,000 Income Summary605,000Assets1 Cost of Sales800,000 Selling Expenses190,000 Administrative Expenses130,000Capital1 Interest expense25,000 To close nominal accounts Income Summary605,000 Capital (Artuz)605,000 To close income to capital Note: Capital balance of Artuz, 500,000 + 48,000 + 605,000 = 1,153,000 Case B.The business is owned by Artuz and Cruz, both CPAs. Prior to making the closing entries, the equity accounts reflected the following: Artuz, Capital600,000 Artuz, Drawings(150,000) Cruz, Capital400,000Assets1 Cruz, Drawings(90,000) Artuz, Capital Sales Revenues1,600,000Artuz, Drawings Rent Income150,000Cruz, Capital Income Summary605,000Cruz, Drawings Cost of Sales800,000Partners' Capital1 Selling Expenses190,000 Administrative Expenses130,000 Interest expense25,000 To close nominal accounts Income Summary605,000 Artuz, Drawings363,000 Cruz, Drawings242,000 To distribute income to partners Case C.The business is a corporation. Prior to the closing entries, the shareholders' equity1st entry:close the above nominal accounts to the title Income Summary. 2nd entry:set up tax liability if the net income is taxable at 30% based on the kind of business 3rd entry:close the profit to the equity accounts (s) also depends on Cases A, B, C: Capital accounts are fixedand used as basis for dividing profits and losses.

accounts showed the following: Share Capital1,500,000 Retained Earnings175,000(where net income or net loss is accumulated) Tax Expense181,500Total Assets2 Tax Payable181,500 To record tax payable Share Capital Sales Revenues1,600,000Retained Earnings Rent Income150,000Total Shareholders' Equity2 Income Summary423,500 Cost of Sales800,000 Selling Expenses190,000Retained Earnings, Beg Administrative Expenses130,000Add:Net Income Interest expense25,000Retained Earnings, End Tax Expense181,500 To close nominal accounts Income Summary423,500 Retained Earnings423,500 To closes IS to RE