Question

1. Professor Plum is negotiating to buy a parcel of property for his business. The seller of the property is asking Php 170,000 for the property. The assessed value of the property for property tax purposes is Php 125,000. The property is presently insured by the owner for Php 135,000. Professor Plum originally offered the seller Php 130,000 for the property. Professor Plum and the seller agreed on the purchase price of Php 150,000. Shortly, after the purchase is made by Professor Plum, he is offered Php 175,000 for the same property. At what price would Professor Plum record the property on the books of his business?

2. In November and December 2016, Azure Today, Inc. a newly established magazine publisher, received Php 7,200,000 for 1,000 three-year subscriptions at Php 2,400 per year. The first issue of the magazine is for January 2017. How much should the company report in its 2016 income statement for subscription revenue?

3. DEF Co. bought supplies from GHI bookstore for P1,000 cash on Jan. 1 2017. He used P600 of supplies throughout the year. DEF Co. was paid by JKL Inc. for P6,000 on August 1, 2017 for services to be rendered monthly throughout the year for 12 months. DEF Co. prepares adjusting entries for these transactions under the method that initially records prepaid expenses as expenses and records unearned revenues as revenues. Also, the company follows the calendar year in preparing its adjusting entries. What is the net profit or loss for the year from these transactions? (Indicate if profit or loss.)

4. At GHI Ltd., the following errors were discovered after the transactions had been journalized and posted.
a. A collection on account from a customer for Php 1,560 was recorded as a debit to Cash Php 1,560 and a credit to Service Revenue for Php 1,560.
b. The purchase of store supplies on account for Php 2,240 was recorded as a debit to Store Supplies Php 2,420 and a credit to Accounts Payable Php 2,420.
Prepare the correcting entry for error a.
Prepare the correcting entry for error b.

Answer 1

	I	The costs to assign to a fixed asset are its purchase cost and any costs
		incurred to bring the asset to the location and condition needed for it to
		operate in the manner intended by management.
		Purchase Price(Agreed Price)	150,000
		Insured value and market value of property should not be taken into consideration.
		If there is any subsequent valuation of the property, Revalued amount should
		be taken into consideration
	II	Assumption:Income is recognised on accrual basis.
		On Accrual basis,Income is recognised when it is actually earned
		Subscription starts in the year 2017(Product is transferred on 2017 only)
		Income to be recognized in 2016 is Nil
	III	Revenue for the year 2017	2,500	(6000/12) X 5 months
		Less:Supplies Expenses	(600)
		Net Profit	1,900
	IV
		Rectification Entry
			Debit	Credit
	A	Service Revenue	1,560
		Accounts Receivable		1,560
	B	Accounts Payable	180
		Supplies		180
		(2420-2240)