1. Gasoline Company reported total purchases of 2,500,000 in its cash basis financial statements on December 31, 2014.

. Additional information revealed the following: Accounts Payable, Jan. 1, 2014 Accounts Payable, Dec. 31, 2014 P 600,000 P 800,000

Under the accrual basis of measuring revenues and expenses, how much is the total purchases for the year ended December 31, 2014? SOLUTION: Purchases cash basis Accounts payable, Dec. 31, 2014 Accounts payable, Jan. 1, 2014 P 2,500,000 800,000 (600,000)

Purchases accrual basis

P 2,700,000

2. Tarzan Company reported total purchases of P 3,200,000 in its accrual basis financial statements on December 31, 2014. Additional information revealed the following: Accounts Payable, Dec. 31, 2013 Accounts Payable, Dec. 31, 2014 P 900,000 P 1,250,000

What is the amount of purchases under the cash basis on Dec. 31, 2014? SOLUTION: Purchases accrual basis Accounts payable, Dec. 31, 2013 Accounts payable, Dec. 31, 2014 P 3,200,000 900,000 (1,250,000)

Purchases cash basis

P 2,850,000

3. Holiness Company owns an office building and leases the offices under a variety of rental agreements involving rent paid in advance monthly or annually. Not all tenants make timely payments of their rent. The following data were taken from the balance sheets of Holiness Company: Rents received were P 96,000 and P 124,000 for 2013 and 2014, respectively; unearned rentals were P 320,000 and P 240,000 for 2013 and 2014, respectively. During 2014, Holiness received P 800,000 cash from tenants. What amount of rental revenue should Holiness record for 2014? SOLUTION: Collection of rentals Rent received, 2014 Rent received, 2013 Unearned rentals, 2013 Unearned rentals, 2014 P 800,000 124,000 ( 96,000) 320,000 (240,000)

Rental revenue

P 908,000

4. Graphix Publishers offered a contest in which the winner would receive P1,000,000 payable over 20 years. On December 31, 2014, Graphix announced the winner of the contest and signed a note payable to the winner for P1,000,000 payable in P 50,000 installments every January 2. Also, on December 31, 2014, Graphix purchased an annuity for P 418,250 to provide P 950,000 prize monies remaining after the first P 50,000 installment, which was paid on January 2, 2014. In its 2014 profit or loss, what should Graphix report as contest prize expense? SOLUTION: First installment of note payable due 2014 Cost of annuity purchased on Dec. 31, 2014 P 50,000 P 418,250

Contest prize expense for 2014

P 468,250

5. Palanca started operating a service proprietorship on April 1, 2014 with an initial cash investment of P 120,000. The business provided P 38,400 of services in April and received full payment in May. The business incurred expenses of P 18,000 in April which were paid in June. During May, Palanca drew P 6,000 against his capital account. What was the income for the two months ended May 31, 2014 under the following methods of accounting? SOLUTION: Cash Basis Revenue Expenses P 38,400 0 Accrual Basis P 38,400 18,000

Net Income

P 38,400

P 20, 400