6kerosene company reported total purchases of

6.Kerosene Company reported total purchases of P2,500,000 in its cash basis financial statement
on December 31, 2010. Additional information were as follows:
Accounts payable, January 1, 2010
P
600,000
Accounts payable, December 31, 2010 800,000
Under the accrual basis, how much is the total purchases for the year ended December
31, 20
2
0?
a. P2,300,000
b. P2,500,000
c. P2,700,000
d. P3,900,000
Faculty: ELIZABETH B. BONEO 7 | P a g e

Intermediate Accounting 3
Module 4: Cash and Accrual Basis
Solution:
Purchases – Cash Basis 2,500,000
Accounts payable – 12/31/10 800,000
Accounts payable – 12/01/10 600,000
Purchases – Accrual Basis 2,700,000
7.Under the accrual basis, rental income of Diesel C
ompany for the calendar year 202
0 is
P600,000. Additional information regarding rental income are as follows:
Unearn
ed rental income, January 1, 202
0
P
50,000
Unearned
rental income, December 31, 202
0 75,000
Accru
ed rental income, January 1, 202
0 30,000
Accrued rental income, December 31,
202
0 40,000
Under the cash basis, how much rental income should be reported by Diesel in year 20
2
0?
8.Ralph Corporation acquires copyright from authors, paying advance royalties in some cases and
in others, paying royalties within 30 days of year-end. Ralph reported royalty expense of
P375,000 for
the year ended December 31, 202
0. The following data are included in the
corporation’s December 31 financial position
2019 202
0
Prepaid royalties
P
60,000
P
50,000
Faculty: ELIZABETH B. BONEO 8 | P a g e

Intermediate Accounting 3
Module 4: Cash and Accrual Basis
Royalties payable 75,000 90,000
Under the cash basis, what amount of royalty expense should Ralph Corporation report in its
2010 income statement?
Solution:
Royalty Expense – Accrual 375,000
Add: Prepaid Royalties, End 50,000
Royalties Payable, Beg. 75,000 125,000
Less: Prepaid Royalties, Beg. 60,000
Royalties Payable, End. 90,000 (150,000)
Rental Income – Cash 350,000
Faculty: ELIZABETH B. BONEO 9 | P a g e

Intermediate Accounting 3
Module 4: Cash and Accrual Basis