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6kerosene company reported total purchases of

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6.Kerosene Company reported total purchases of P2,500,000 in its cash basis financial statementon December 31, 2010. Additional information were as follows:Accounts payable, January 1, 2010P600,000Accounts payable, December 31, 2010800,000Under the accrual basis, how much is the total purchases for the year ended December31, 2020?a.P2,300,000b.P2,500,000c.P2,700,000d.P3,900,000Faculty: ELIZABETH B. BONEO7 |P a g e
Intermediate Accounting 3Module 4: Cash and Accrual BasisSolution:Purchases – Cash Basis2,500,000Accounts payable – 12/31/10800,000Accounts payable – 12/01/10600,000Purchases – Accrual Basis2,700,0007.Under the accrual basis, rental income of Diesel Company for the calendar year 2020 isP600,000. Additional information regarding rental income are as follows:Unearned rental income, January 1, 2020P50,000Unearnedrental income, December 31, 202075,000Accrued rental income, January 1, 202030,000Accrued rental income, December 31,202040,000Under the cash basis, how much rental income should be reported by Diesel in year 2020?
8.Ralph Corporation acquires copyright from authors, paying advance royalties in some cases andin others, paying royalties within 30 days of year-end.Ralph reported royalty expense ofP375,000 forthe year ended December 31, 2020. The following data are included in thecorporation’s December 31 financial position20192020Prepaid royaltiesP60,000P50,000Faculty: ELIZABETH B. BONEO8 |P a g e
Intermediate Accounting 3Module 4: Cash and Accrual BasisRoyalties payable75,00090,000Under the cash basis, what amount of royalty expense should Ralph Corporation report in its2010 income statement?
Solution:Royalty Expense – Accrual375,000Add: Prepaid Royalties, End50,000Royalties Payable, Beg.75,000125,000Less: Prepaid Royalties, Beg.60,000Royalties Payable, End.90,000(150,000)Rental Income – Cash350,000Faculty: ELIZABETH B. BONEO9 |P a g e
Intermediate Accounting 3Module 4: Cash and Accrual Basis
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Winter
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Generally Accepted Accounting Principles, Elizabeth B Boneo

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