Answers to Practical Exercises and Problems for CHAPTER 3

Name: Score: Subject / Section: Professor:

P3-1. How would the following accounts be classified (Asset, Liability, Owner's Equity, Revenue, or Expense)?

Asset 1. Cash Liability 6. Mortgage payable Owner’s Equity 2. G. Williams, Capital Asset 7. Equipment

Liability 3. Accounts payable Revenue 8. Room sales Asset 4. Inventory Expense 9. Payroll taxes expense

Expense 5. Cost of food sold Asset 10. Accounts receivable

P3-2. The Williamston Café experienced several cash transactions on July 1, 2004, as follows:

a. Received cash on account for P3,000.

b. Received cash from sales of July 1, 2004, for P7,000.

c. Paid payroll taxes of P4,500.

d. Purchased a new range costing P60,000 by paying P10,000 and signing a note payable for P50,000 with the supplier.

e. Received cash of P50,000 from an investor in the business.

f. Paid a food supplier P20,000 on account.

Required: Determine the balance of the cash account at the end of the day. The cash balance at the beginning of the day was P6,500.

ANSWER: P 32,000 (P6,500 + 3,000 + 7,000 - 4,500 - 10,000 + 50,000 - 20,000)

P3-3. Pam Reyes & Company had P156,000 in food sales during 2001. In addition Pam had interest revenue of P5,200 for the year. Cost of food sales for the year totaled P92,000. Other expenses for the year were:

Rent P18,000Wages 14,600Advertising 3,200Utilities 2,400

Required: Determine the net income for the company for 2001 using the pro-forma income statement on page 29.

ANSWER: P 31,000

Supporting Computations for Problem 3-3:

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Answers to Practical Exercises and Problems for CHAPTER 3

Revenues:Sales P 156,000Interest revenue 5,200

161,200Cost and expenses:

Cost of food sales 92,000Rent 18,000Wages 14,600Advertising 3,200Utilities 2,400

130,200Net income P 31,000

Name: Score: Subject / Section: Professor:

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Answers to Practical Exercises and Problems for CHAPTER 3

P3-4. Sandra's Restaurant was organized on January 3, 2001. While many companies are not profitable in their first year, the company experienced a modest net income of P17,500 in 2001.

Required: Prepare a statement of owner's equity assuming Sandra Reyes began the company as a sole proprietorship by investing P20,000 of her own money. Refer to page 29 for the format.

Sandra’s RestaurantStatement of Owner’s Equity

For the Year Ended December 31, 2001

Beginning Capital P 20,000

Add Net Income 17,500

Ending Capital P 37,500

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