CHAPTER 36

SINGLE ENTRY
Basic Problems

Problem 36-1 (IAA)

Console Company reported capital at P1,700,000 on January 1 and P2,400,000 on December 31.

During the current year, the owner withdrew merchandise with a carrying amount of P100,000 and sales
value of P180,000.

The owner also paid a P1,000,000 note payable of the business with interest of 12% for six months with a
check drawn on a personal checking account.

What is the net income or loss for the current year?

a. 260,000 income
b. 260,000 loss
c. 180,000 income
d. 180,000 loss

Solution 36-1 Answer b

Capital – December 31 2,400,000

Add: Withdrawals- merchandise at carrying amount 100,000

Total 2,500,000
Less: Capital – January 1 1,700,000
Additional investment 1,060,000 2,760,000

Net Loss (260,000)

The additional investment is determined as follows:

Payment of note payable out of personal checking account 1,000,000

Interest (1,000,000 x 12% x 6/12) 60,000

Total 1,600,000

Problem 36-2 (AICPA Adapted)

On December 31, 2018, Melissa Company showed shareholders’ equity of P5,000,000.

The share capital of P3,000,000 remained unchanged during the year.

Transactions during the year which affected the equity were:

 An adjustment of retained earnings for 2017 overdepreciation 100,000

 Gain on sale of treasury shares 300,000
 Dividend declared, of which P400,000 was paid 600,000
 Net income for 2018 800,000
What is the balance of retained earnings on January 1, 2018?

a. 1,400,000
b. 1,700,000
c. 1,200,000
d. 1,600,000

Solution 36-2 Answer a

Retained earnings – January 1 (SQUEEZE) 1,400,000

Net income 800,000
Prior period error of 2017 overdepreciation 100,000

Total 2,300,000
Dividends declared (600,000)

Retained earnings - December 31 1,700,000

The beginning balance of retained earnings is “squeezed” by working back from the ending balance.

Total shareholders’ equity 5,000,000

Less: Share capital 3,000,000
Share premium from treasury shares 300,000 3,300,000

Retained earnings – December 31 1,700,000

Problem 36-3 (IAA)

Aubrey Company provided the following data at year-end:

2017 2018

Share capital, P100 par value 5,000,000 5,500,000

Share premium 1,500,000 2,500,000
Retained Earnings 3,000,000 4,500,000

During 2018, the entity declared and paid cash dividend of P1,000,000 and also declared and issued a share
dividend.

There were no other changes in equity during 2018.

What is the net income for 2018?

a. 3,000,000
b. 2,500,000
c. 1,000,000
d. 4,000,000

Solution 36-3 Answer d

Increase in share capital (5,500,000 – 5,000,000) 500,000

Increase in share premium (2,500,000 – 1,500,000) 1,000,000

Share dividend 1,500,000

Retained earnings – December 31, 2018 4,500,000
Share Dividend 1,500,000
Cash Dividend 1,000,000

Total 7,000,000
Retained earnings – December 31, 2017 (3,000,000)

Net Income for 2018 4,000,000

Problem 36-4 (IAA)

Trend Company provided the following information for the current year:

Net Loss 100,000

Total assets on December 31 3,000,000
Share capital on December 31 1,000,000
Share premium 500,000
Dividends declared 700,000
Debt-to-equity ratio (liabilities dividend by equity) 50%

What amount of retained earnings was reported on January 1?

a. 1,100,000
b. 1,300,000
c. 500,000
d. 600,000

Solution 36-4 Answer b

Shareholders’ equity (3,000,000 / 150%) 2,000,000

Contributed capital (1,500,000)

Retained earnings – December 31 500,000

Share Capital 1,000,000

Share Premium 500,000
Contributed Capital 1,500,000

Total Liabilities 1,000,000 50%

Shareholder’s equity 2,000,000 100%

Total Assets 3,000,000 150%

Retained earnings – January 1 (SQUEEZE) 1,300,000

Net Loss ( 100,000)
Dividends declared ( 700,000)

Retained earnings – December 31 500,000

Problem 36-5 (AICPA Adapted)

Vela Company reported the following increases in accout balances during the current year:

Asset 8,900,000
Liabilities 2,700,000
Share capital 6,000,000
Share premium 600,000

Except for a P1,300,000 dividend payment and the year’s earnings, there were no changes in retained
earnings for the year.

What is the net income for the current year?

a. 400,000
b. 900,000
c. 1,300,000
d. 1,700,000

Solution 36-4 Answer b

Effect on Equity
Increase in assets 8,900,000
Increase in liabilities (2,700,000)
Net Increase in equity 6,200,000
Add: Dividend 1,300,000

Total 7,500,000

Less: Increase in share capital 6,000,000

Increase in share premium 600,000 6,600,000

Net Income 900,000

Increase in asset will increase equity and decrease in asset will decrease equity.

Increase in liability will decrease equity and decrease in liability will increase equity.

Problem 36-6 (IAA)

Easy Company reported beginning and ending total liabilities at P840,000 and P1,000,000, respectively.

At year-end, owner’s equity was P2,600,000 and total assets were P200,000 larger than at the beginning of
the year.

The new share capital issued exceeded dividends paid by P240,000.

What is the net income or loss for the year?

a. 280,000 income
b. 280,000 loss
c. 200,000 loss
d. 40,000 income

Solution 36-6 Answer c

Increase in assets 200,000

Increase in liabilities (1,000,000 – 840,000) (160,000)

Increase in owners’ equity 40,000

Excess of share capital issued over dividends paid (240,000)

Net Loss (200,000)

Problem 36-7 (IAA)

Sunshine Company had total assets of P4,000,000 and shareholders’ equity of P2,000,000 at the beginning
of the year.

During the year, assets increased by P500,000 and liabilities decreased by P800,000.

What is the shareholders’ equity at the end of the year?

a. 3,300,000
b. 2,300,000
c. 1,000,000
d. 1,300,000

Solution 36-7 Answer a

Effect on equity
Increase in assets 500,000
Decrease in liabilities 800,000

Net increase in equity 1,300,000

Shareholders’ equity – beginning 2,000,000

Shareholders’ equity – ending 3,300,000

Problem 36-8 (IAA)

On January 1, Racel Company showed total assets of P5,000,000, total liabilities of P2,000,000 and
contributed capital of P2,000,000.

During the current year, the entity issued share capital of P500,000 par value at a premium of P300,000.
Dividend of P250,000 was paid on December 31.

On December 31, total assets amounted to P7,500,000 and total liabilities amounted to P3,200,000.

What is the net income for the current year?

a. 1,750,000
b. 1,000,000
c. 750,000
d. 500,000

Solution 36-8 Answer c

January 1 December 31
Total assets 5,000,000 7,500,000
Total liabilities 2,000,000 3,200,000

Equity 3,000,000 4,300,000

Increase in equity (4,300,000 – 3,000,000) 1,300,000
Dividend paid 250,000

Total 1,550,000
Issue price of share capital at a premium ( 800,000)

Net Income 750,000

Share capital at par 500,000

Share Premium 300,000

Total issue price 800,000

CHAPTER 37
SINGLE ENTRY
Comprehensive Problems

Problem 37-1 (IAA)

Isabel Company disclosed the following changes:

Cash 480,000 decrease

Accounts Receivable 300,000 increase
Merchandise Inventory 3,100,000 increase
Accounts Payable 420,000 increase

During the year, the owner borrowed P4,000,000 from the bank and paid off of P3,000,000 and interest of
P240,000. Interest of P100,000 is accrued on December 31. There was no interest payable at the beginning
of the year.

In the current year, the owner transferred certain trading securities to the business and these were sold for
P1,500,000 to finance purchase of merchandise. The owner made weekly withdrawals of P10,000.

What is the net income for the current year?

a. 1,520,000
b. 1,920,000
c. 1,400,000
d. 420,000

Solution 37-1 Answer d

Effect on equity
Increase Decrease
Decrease in Cash 480,000
Increase in Accounts Receivable 300,000
Increase in Inventory 3,100,000
Increase in Accounts Payable 420,000
Increase in Loan Payable (4,000,000 – 3,000,000) 1,000,000
Increase in Accrued Interest Payable 100,000
3,400,000 2,000,000
Net increase in equity (3,400,000 – 2,000,000) 1,400,000
Withdrawals (10,000 x 52 weeks) 520,000
Additional investments (sale of securities) (1,500,000)

Net Income 420,000

Problem 37-2 (PHILCPAAdapted)

Camadillo Company reported the following changes in all the account balances for the current year, except
for retained earnings:
Increase
(Decrease)
Cash 800,000
Accounts Receivable, net 250,000
Inventory 1,250,000
Investments ( 500,000)
Accounts Payable ( 400,000)
Bonds Payable 900,000
Share Capital 1,000,000
Share Premium 100,000

There were no entries in the retained earnings account except for net income and a dividend declaration of
P300,000 which was paid in the current year

What is the net income for the current year?

a. 1,300,000
b. 1,600,000
c. 500,000
d. 200,000

Solution 37-2 Answer c

Effect on Equity
Increase in cash 800,000
Increase in accounts receivable 250,000
Increase in inventory 1,250,000
Decrease in investments ( 500,000)
Decrease in accounts payable 400,000
Increase in bonds payable ( 900,000)

Net increase in equity 1,300,000

Add: Dividend declared 300,000

Total 1,600,000

Less: Increase in share capital 1,000,000

Increase in share premium 100,000 1,100,000

Net Income 500,000

Problem 37-3 (IAA)

Java Company reported the following increases (decreases) in the accounts for the current year:

Cash 1,500,000
Accounts Receivable (net) 3,500,000
Inventory 3,900,000
Investments (1,000,000)
Equipment 3,000,000
Accounts Payable (800,000)
Bonds Payable 2,000,000

During the year, the entity sold 100,000 shares with P20 par value for P30 per share and received cash in
full.

Dividend of P1,500,000 was paid in cash during the year.

Equipment with fair value of P2,000,000 was donated by a shareholder during the year.
What is the net income for the current year?

a. 6,200,000
b. 9,700,000
c. 8,200,000
d. 7,700,000

Solution 37-3 Answer a

Effect on equity

Increase in cash 1,500,000

Increase in accounts receivable 3,500,000
Increase in inventory 3,900,000
Decrease in investments (1,000,000)
Increase in equipment 3,000,000
Decrease in accounts payable 800,000
Increase in bonds payable (2,000,000)
Net increase in equity 9,700,000
Add: Dividend paid 1,500,000
Total 11,200,000

Less: Increase in contributed capital

(100,000 x 30) 3,000,000
Increase in donated capital 2,000,000. 5,000,000
Net Income 6,200,000

Problem 37-4 (IAA)

At the beginning of current year, Crispin Santos started a retail merchandise business.

During the year, the entity paid trade creditors P2,000,000 and suffered a net loss of P350,000.

The ledger account preclosing balances at year-end included the following:

Accounts receivable 600,000

Accounts payable 750,000
Capital – total investment in cash 2,000,000
Expenses paid in cash 100,000
Merchandise account with unadjusted debit balance 700,000

All sales and purchases were on credit. The merchandise account is debited for purchases and credited for
sales.

1. What is the amount of purchases for the year?

a. 2,000,000
b. 2,750,000
c. 1,250,000
d. 2,050,000

2. What is the amount of sales for the year?

a. 2,750,000
b. 2,050,000
c. 2,650,000
 d. 700,000

3. What is the cash balance on December 31?

a. 1,350,000
b. 2,000,000
c. 1,450,000
d. 3,450,000

4. What is the merchandise inventory on December 31?

a. 700,000
b. 450,000
c. 750,000
d. 0

Solution 37-4

Question 1 Answer b

Question 2 Answer b

Accounts payable – December 31 750,000

Payments to trade creditors 2,000,000

Total Purchases 2,750,000

Less: Unadjusted debit balance of merchandise account 700,000

Sales 2,050,000

Question 3 Answer a

Cash – January 1 (Investment) 2,000,000

Collections of AR (2,050,000 – 600,000) 1,450,000

Total 3,450,000
Less: Payment of Account Payable 2,000,000
Payment of expenses 100,000 2,100,000

Cash – December 31 1,350,000

Question 4 Answer b

Sales 2,050,000
Cost of Sales
Purchases 2,750,000
Merchandise Inventory – 12/31 (squeeze) ( 450,000) 2,300,000

Gross Loss ( 250,000)

Expenses ( 100,000)

Net Loss ( 350,000)

The ending merchandise inventory is “squeezed” by working back from net loss of P350,000.
Problem 37-5

At the beginning of current year, Complex Company started business and issued share capital, 60,000
shares with P100 par, for the following considerations:

Cash 500,000
Building with useful life of 15 years 4,500,000
Land 1,500,000
6,500,000

An analysis of the bank statements showed total deposits, including the original cash investment, of
P3,500,000.

The balance in the bank statement on December 31 was P250,000 but there were checks amounting to
P50,000 dated in December but not paid by the bank until January of next year.

Cash on hand on December 31 was P125,000 including customers' deposit of P75,000.

During the year, the entity borrowed P500,000 from the bank and repaid P125,000 and P25,000
interest.The proceeds of the loan were credited to the bank account of the entity.

Disbursements paid in cash during the year were:

Utilities 100,000
Salaries 100,000
Supplies 175,000
Taxes 25,000
Dividends 150,000
550,000

An inventory of merchandise taken on December 31 showed P755,000 of merchandise.

Tickets for accounts receivable totaled P900,000 but P50,000 of that amount may prove uncollectible.
Unpaid suppliers invoices for merchandise amounted to P350,000.

Equipment with a cash price of P400,000 was purchased in early January on a one-year installment basis.

During the year, checks for the downpayment and all maturing installments totaled P455,000. The
equipment has a useful life of 5 years.

1. What is the amount of sales for the year?

a. 4,000,000
b. 3,400,000
c. 3,100,000
d. 4,050,000

2. What is the amount of purchases for the year?

a. 3,055,000
b. 2,705,000
c. 2,355,000
d. 3,810,000
 3. What is the net income for the year?

a. 800,000
b. 650,000
c. 870,000
d. 850,000

4. What is the amount of total assets on December 31?

a. 7,950,000
b. 7,800,000
c. 8,330,000
d. 8,380,000

5. What is the amount of shareholders' equity on December 31?

a. 7,150,000
b. 7,300,000
c. 6,500,000
d. 6,650,000

Solution 37-5

Question 1 Answer a

Initial cash investment 500,000

Proceeds of loan 500,000
Collections of accounts receivable (SQUEEZE) 2,500,000
Total Deposits 3,500,000

Customers' deposit 75,000

Collections of accounts receivable (SQUEEZE) 600,000
Total 675,000
Disbursements in cash (550,000)
Cash on hand – December 31 125,000

Accounts Receivable – December 31 900,000

Collections deposited 2,500,000
Collections not deposited 600,000
Total sales 4,000,000

Question 2 Answer a

Total deposits 3,500,000

Total disbursements in check (SQUEEZE) (3,300,000)
Adjusted cash in bank – December 31 200,000

Cash in bank per book 250,000

Outstanding checks (50,000)
Adjusted cash in bank 200,000

Payment of loan 125,000

Interest on loan 25,000
Payment for equipment 400,000
Interest on equipment 45,000
Payment of accounts payable (SQUEEZE) 2,705,000
Total disbursements in check 3,300,000

Accounts payable – December 31 350,000

Payment of accounts payable 2,705,000
Total purchases 3,055,000

Question 3 Answer a

Sales 4,000,000
Cost of goods sold:
Purchases 3,055,000
Inventory – December 31 (755,000) 2,300,000
Gross Income
Expenses:
Utilities 100,000
Salaries 100,000
Supplies 175,000
Taxes 25,000
Doubtful accounts 50,000
Depreciation – building (4,500,000/15) 300,000
Depreciation – equipment (400,000/5) 80,000
Interest expense (25,000 + 45,000) 70,000 900,000
Net Income 800,000

Question 4 Answer a

Cash 325,000
Accounts Receivable 900,000
Allowance for doubtful accounts (50,000)
Inventory 755,000
Land 1,500,000
Building 4,500,000
Accumulated Depreciation – building (300,000)
Equipment 400,000
Accumulated Depreciation – equipment (80,000)

Total assets 7,950,000

Cash on hand 125,000

Cash in bank 200,000

Total cash 325,000

Question 5 Answer a

Accounts payable 350,000

Loan payable – bank (500,000 – 125,000) 375,000
Customers' deposit 75,000

Total liabilities – December 31 800,000

Share Capital (60,000 x P100) 6,000,000
Share Premium (6,500,000 – 6,000,000) 500,000
Retained Earnings 650,000
Total Shareholders' equity – December 31 7,150,000

Net Income 800,000

Dividends paid (150,000)

Retained Earnings 650,000

Liabilities 800,000
Shareholders' equity 7,150,000

Total liabilities and shareholders' equity 7,950,000

Note that the total amount of assets is equal to the total amount of liabilities and shareholders' equity.