Hair Do Essentials, a business engaged in selling of salon supplies, maintains its

records on cash basis. The following are summarized transactions of Hair Do

Essentials for the year 2018, its second year of operation:

Collection from customers 420,000

Cash sales 648,000
Sales returns and allowances 20,000
Sales discount 10,000
Payment to supplier 675,000
Purchase returns and allowances 50,000
Purchase discount 45,000
Selling expenses 75,000
Administrative expenses 45,000
Rent expenses 10,000
Equipment and furniture purchased 35,000
Accounts receivable written off 10,000

The following balances have been excerpted from Hair Do’s statements of financial
position:
12/31/2017 12/31/2018
Accounts receivable 100,000 150,000
Accounts payable 170,000 250,000
Merchandise inventory 250,000 400,000

Additional information
a. The equipment and furniture were purchased on October 1, 2017, and have an
estimated useful life of 10 years with no salvage value.
b. The entity paid 30,000 for rent for three months on December 1, 2018.
c. The entity obtained a loan from the bank of 100,000 with an interest rate of
12% dated October 1, 2018. The loan matures in 1 year. The interest is payable
at maturity.
d. Cash on December 31, 2018, 388,000
Based on the above and the result of your audit, determine the accrual balance of the
following as of December 31, 2018:
1. The gross sales
a. 1,128,000
b. 1,158,000
c. 1,148,000
2. Net purchases
a. 850,000
b. 755,000
c. 800,000
3. Current asset
a. 958,000
b. 938,000
c. 800,000
4. Total asset
a. 927,375
b. 927,735
c. 827,375
5. Total liabilities
a. 353,000
b. 253,000
c. 350,000
6. Total operating expenses
a. 132,250
b. 143,500
c. 133,500
7. Total depreciation expense
a. 4,375
b. 875
c. 3,500
8. Cost of goods sold
a. 700,000
b. 605,000
c. 525,000
9. Net income
a. 294,500
b. 284,500
c. 293,625
10. Capital, December 31, 2018
a. 474,375
b. 571,375
c. 574,375
Suggested Solution:

Question No. 1
Accounts receivable, 12/31/18 150,000
Accounts written off 10,000
Collection from customer 420,000
Sales returns 20,000
Sales discounts 10,000
Total 610,000
Accounts receivable, 12/31/17 (100,000)
Sales on account 510,000
Cash sales 648,000
Gross sales 1,158,000

Question No. 2
Accounts payable, 12/31/18 250000
Purchase returns 50000
Purchase discounts 45000
Payment to supplier 675000
Total 1020000
Accounts payable, 12/31/2017 (170000)
Gross purchase 850000
Purchase returns (50000)
Purchase discount (45000)
Net purchases 755,000

Question No. 3
Cash 388,000
Accounts receivable 150,000
Inventories 400,000
Prepaid rent 20,000
Current Asset 958,000

Question No. 4
Cash 388,000
Accounts receivable 150,000
Inventories 400,000
Prepaid rent 20,000
Current Asset 958,000
Equipment and Furniture [35,000-
(875+3500)] 30,625
Total Asset 927,375
Question No. 5
Accounts payable 250,000
Interest payable
(100,000*12%*3/12) 3,000
Bank loan 100,000
Current Liabilities 353,000

Question No. 6
Selling expenses 75,000
Administrative expenses 45,000
Rent expenses 10,000
Depreciation expenses 3,500
Total operating expenses 133,500

Question no. 7
Equipment 35,000
Divide by 10 years
Depreciation for 2018 3,500

Question No. 8
Inventories, 12/31/2017 250,000
Purchases 850,000
Total goods available for sale 1,100,000
Less inventory, 12/31/2018 400,000
Cost of goods sold 700,000

Question No. 9
Gross sales 1,158,000
Less:
Sales returns 20,000
Sales discount 10,000
Net sales 1,128,000
Less cost of goods sold 700,000
Gross Profit 428,000
Less expenses:
Selling expenses 75,000
Administrative
expenses 45,000
Rent expenses 10,000
Depreciation expense 3,500 133,500
Net income 294,500
Question No. 10
Total liabilities and equity 927,375
Less:
Accounts payable 250,000
Interest payable 3,000
Bank loan 100,000
Capital, 12/31/18 574,375