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LARES Company
Working Balance Sheet
December 31, 2005
Per Books

Adjustments

Per Audit

Assets
Current assets
Cash

Accounts receivable

132,700

442,500

60 days old and below

238,500

61 to 90 days
Over 90 days
Allowance for doubtful accounts

117,200
85,400
(15,000)

Interest receivable
Advances to officers and employees
Inventory

TOTAL
Non-current assets
Available for sale securities
Investment in Associate

Equipment

Accumulated depreciation

TOTAL
TOTAL
Current Liabilities
Accounts payable
Accrued expenses
Bank overdraft
Customers' credit balance
Interest payable

367,200

596,000
-

705,000

(481,000)

143,400

403,400

205,800

133,200
64,400
(7,942)

6,000
19,000
384,800

948,658
17
18
18
19
20
21
23
24
25

(6,000)
(490,000)
490,000
10,000
50,000
(34,000)
(40,000)
(55,000)
(5,000)

100,000

23
24
26

30,000
60,000
20,000

(371,000)

516,000

605,000

820,000

850,000

1,747,400

1,798,658

168,175
28,600
196,775
416,000
-

Total liabilities

416,000
612,775

Stockholders equity:
Common stock, P10 par
Stock dividends distributable
Additional paid-in capital

670,000
80,000

TOTAL

(5,200)
35,000
(500)
(16,000)
(2,600)
16,000
(12,000)
(1,200)
(18,000)
(1,500)
15,000
(16,400)
(21,000)
(12,000)
(1,200)
(18,000)
(1,500)
16,000
(21,000)
(15,000)
21,000
1,058
6,000
2,600
16,400
13,000
1,600
(14,000)
17,000

927,400

Noncurrent Liabilities
Bonds payable
Discount on bonds payable

Retained earnings
Treasury stock

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2
3
4
5
4
6
7
8
9
10
11
12
6
7
8
9
4
12
10
12
13
22
5
11
8
14
15
16

2
16
27

35,000
17,000
32,000

29

48,000

28
28
30

(16,000)
(24,000)
773

220,175
60,600
48,000
328,775
400,000
(23,227)
376,773
705,548

31
32
31
32

384,625
17

(20,000)
64,500
20,000
32,250
from WPL
(6,000)

650,000
64,500
132,250
252,360
(6,000)

1,134,625

1,093,110

1,747,400

1,798,658

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

Net sales

Per Books
1,053,500

Cost of sales

525,400

Gross profit

528,100

Other income

42,450

Investment income

Total

570,550

Expenses
Operating expenses

276,900

Other expenses
Finance cost

Net income before income tax


Retained earnings, beg.
Dividends declared
Retained earnings, end.

SUGGESTED ANSWERS TO MULTIPLE CHOICE


1 - 40. D

6
7
8
8
14
15

(12,000)
(1,200)
(18,000)
(13,000)
(1,600)
14,000

Per Audit
1,022,300

524,800

497,500
21
22
24
20

(34,000)
6,000
5,000
50,000

19,450

50,000
566,950

1
3
9
13
25
26
27
23
28
29
30

5,200
500
1,500
(1,058)
5,000
(20,000)
32,000
10,000
(40,000)
48,000
773

300,042

10,000
8,773

276,900

318,815

293,650

248,135

90,975
384,625

19
32

10,000
(96,750)
to WBS

100,975
(96,750)
252,360

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LARES Company
Summary of Adjusting Journal Entries
December 31, 2005
DEBIT
1 Operating expenses
Cash
Unreplenished vouchers (6,400-1,200)

5,200
5,200

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

4,800

2 Cash
Accounts Payable
Unreleased check

35,000
35,000

3 Operating Expenses (Bank service charge)


Cash
Unrecorded BSC

500
500

4 Accounts receivable (61-90 days)


Cash
Post dated check

16,000
16,000

5 Advances to officers and employees


Cash

Unadjusted balances
Bank service charge
Post dated check
Outstanding checks
Undeposited collections
Corrected balances
Unlocated difference - cash shortage
Adjusted balances

2,600
2,600

3
4

Book
137,700
(500)
(16,000)

121,200
(2,600)
118,600

6 Net sales
Accounts receivable (<60 days)
Unrecorded credit memo

12,000

7 Net sales
Accounts receivable (<60 days)
Unrecorded employee discount

1,200

8 Net sales
Accounts receivable (<60 days)

18,000

Inventory
Cost of sales
Goods out on consignment erroneously billed
9 Operating expenses
Accounts receivable (<60 days)
Unrecorded freight-out

CREDIT

Bank
124,200

(14,100)
8,500
118,600
118,600

12,000

1,200

18,000
13,000
13,000

1,500
1,500

10 Accounts receivable
Allowance for doubtful accounts
Erroneous recording of recovery from written off account

15,000

11 Advances to officers and employees


Accounts receivable

16,400

15,000

16,400

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LARES Company
Summary of Adjusting Journal Entries
December 31, 2005
DEBIT
12 Allowance for doubtful accounts
Accounts receivable (>90 days)
Accounts that should be written off
13 Allowance for doubtful accounts
Operating expenses

21,000
21,000

1,058
1,058

60 days old and below


205,800 1%
61 to 90 days
133,200 2%
Over 90 days
64,400 5%
Required allowance
Balance per books before this adjustment (15,000+15,000-21,000)
Adjustment
14 Inventory
Cost of sales
Includible goods excluded from physical count

1,600

14,000

16 Inventory
Accounts payable
Unrecorded purchases, FOB shipping point

17,000

18 Investment in Associate
Available for sale securities
Reclassification of AFS to Investment in Associate

14,000

17,000

6,000
6,000
490,000
490,000

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

10,000

20 Investment in Associate
Investment income (250,000 x 20%)

50,000

21 Other income (Dividend income)


Investment in Associate

34,000

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

2,058
2,664
3,220
7,942
9,000
1,058

1,600

15 Cost of sales
Inventory
Goods on consignment presumed included in physical count

17 Treasury stock
Available for sale securities

CREDIT

10,000

50,000

34,000
6,000
6,000

23 Other expenses (Loss on disposal of assets)


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

10,000
30,000

24 Accumulated depreciation
Equipment
Other income (Gain on disposal of assets)

60,000

40,000

55,000
5,000

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LARES Company
Summary of Adjusting Journal Entries
December 31, 2005
DEBIT
25 Operating expenses
Equipment
26 Accumulated depreciation
Operating expenses

5,000
5,000
20,000
20,000

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


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

106,000
2,500
5,000
7,500
121,000
141,000
20,000

27 Operating expenses
Accrued expenses

32,000

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

16,000
24,000

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


Interest payable

48,000

30 Finance Cost (Interest expense)


Discount on bonds payable
Discount amortization using effective interest method

32,000

40,000

48,000
773
773

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


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

31 Common stock
Additional paid-in capital [10,000 x (12-10)]

CREDIT

8,773
8,000
773
20,000
20,000

A
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2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35

Cash on hand and in bank


Notes receivable
Accounts receivable
Allow. for doubtful accounts
Accounts receivable-net
Accounts receivable-others
Advances to officers and employees
Marketable securities
Allow. for decline in MV of marketable sec.
Inventories
Prepayments
Total curent assets
Property, plant and equipment
Accumulated depreciation
PPE-net
Total assets
Accounts payable
Accrued expenses
Total current liabilities
Bonds payable
Bond discount
Total liabilities
Common stock
Retained earnings, end.
Net sales
Cost of sales
Gross Profit
Operating expenses
Operating income
Other income
Other charges
Net income
Gain on sale of Maretable securities-SMC
Bond discount amortization
Dividend income-SMC Co. common

38,700
4,000
36,000
1,800
40,100
2,750
3,840
13,000
1,375
15,400
100
111,904
990,000
346,000
566,000
677,904
600
2,800
2,800
397,000
37,000
400,000
311,102
125,104
944,000
669,600
280,400
270,798
23,602
5,000
6,500
16,352
1,000
1,000
1,000

B
35,002
4,500
40,000
2,000
38,000
1,000
10,750
250
20,000
500
113,302
1,910,000
344,000
1,566,000
713,950
4,000
4,000
5,200
400,000
3,000
405,200
200,000
108,750
948,000
665,000
282,400
264,798
15,000
7,250
9,000
11,000
2,250
4,000
500

C
34,402
5,000
42,000
2,100
40,000
500
2,840
8,500
1,125
24,600
113,950
910,000
350,000
606,000
679,302
5,200
5,200
4,000
363,000
43,000
363,000
108,750
111,102
950,000
661,000
285,000
270,000
17,602
5,500
6,000
17,000
1,750
3,000
2,000

D
35,502
5,500
38,000
1,900
39,900
1,000
3,740
4,250
16,000
900
112,802
940,000
356,000
584,000
678,802
2,800
1,200
1,200
360,000
40,000
368,200
308,750
94,750
952,000
664,400
287,000
264,000
18,400
7,750
3,000
14,000
1,500