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Problem 1.

The following balance sheet has been submitted to you by an inexperienced


bookkeeper. List your suggestions for improvements in the format of the balance sheet.
Consider both terminology deficiencies as well as classification inaccuracies.

Densen Industries, Inc.


Balance Sheet
For the Period Ended 12/31/17

Assets

Fixed Assets—Tangible
Equipment P110,000
Less: reserve for depreciation (40,000) P 70,000
Factory supplies 22,000
Land and buildings 400,000
Less: reserve for depreciation (150,000) 250,000
Plant site held for future use 90,000 P 432,000
Current Assets
Accounts receivable 175,000
Cash 80,000
Inventory 220,000
Treasury stock (at cost) 20,000 495,000
Fixed Assets--Intangible
Goodwill 80,000
Notes receivable 40,000
Patents 26,000 146,000
Deferred Charges
Advances to salespersons 60,000
Prepaid rent 27,000
Returnable containers 75,000 162,000
TOTAL ASSETS P1,235,000
Liabilities
Current Liabilities
Accounts payable P140,000
Allowance for doubtful accounts 8,000
Common stock dividend distributable 35,000
Income taxes payable 42,000
Sales taxes payable 17,000 P 242,000
Long-Term Liabilities, 5% debenture bonds, due 2010 500,000
Reserve for contingencies 150,000 650,000
TOTAL LIABILITIES 892,000
Equity
Capital stock, P10.00 par value, issued 12,000 shares with
60 shares held as treasury stock P150,000
Capital surplus 90,000
Dividends paid (20,000)
Earned surplus 123,000
TOTAL EQUITY 343,000
TOTAL LIABILITIES AND EQUITY P1,235,000

Note 1. The reserve for contingencies has been created by charges to earned surplus and has
been established to provide a cushion for future uncertainties.
Note 2. The inventory account includes only items physically present at the main plant and
warehouse. Items located at the company's branch sales office amounting to P40,000
are excluded since the company has consistently followed this procedure for many
years.
Problem 2. The controller for Grant Corporation is concerned about certain business
transactions that the company experienced during 2018. The controller, after discussing these
matters with various individuals, has come to you for advice. The transactions at issue are
presented below.

1. The company has decided to switch from the direct write-off method in accounting for bad
debt expense to the percentage-of-sales approach. Assume that Grant Corporation has
recognized bad debt expense as the receivables have actually become uncollectible in the
following way:
2017 2018
From 2017 sales 31,800 12,000
From 2018 sales 45,000

The controller estimates that an additional P65,400 will be charged off in 2009: P11,400
applicable to 2017 sales and P54,000 to 2018 sales.

2. Inventory has been shipped on consignment. These transactions have been recorded as
ordinary sales and billed as such on account. At December 31, 2018, inventory billed and in
the hands of consignees amounted to P400,000. The percentage markup on selling price is
20%. Assume that consigned inventory is sold the following year. The company uses the
perpetual inventory system.

3. During the current year, the company sold P600,000 of goods on the installment basis. The
cost of sales associated with these goods sold is P420,000. The company inadvertently
handled these sales and related costs as part of the regular sales transactions. Cash of
P172,000, including a down payment of P60,000, was collected on these installment sales
during the current year. Due to questionable collectibility, the installment method was
considered appropriate.

Instructions
(a) Assume that Grant Corporation reported net income of P1,000,000 for 2018. Present a
schedule showing the corrected net income after reviewing the above transactions.
(b) Prepare the journal entries necessary at December 31, 2018, assuming that the books
have been closed.