Problem 4 Ahw Tsu prepares financial statements on the cash basis. The statement of financial position on December 31, 2020, and the income statement for the current year are as follows:
Cash: P1,500,000
Furniture and equipment: P2,500,000
Accounts payable: P100,000
Note payable: P1,000,000
Capital: Balance, January: P1,600,000
Add: Net income: P2,250,000
Total: P3,850,000
Less: Withdrawals: P850,000
Total liabilities and equity: P4,000,000
Professional fees: P5,000,000
Expenses:
Rent: P1,200,000
Supplies: P800,000
Other expenses: P750,000
Net income: P2,250,000
It was decided that the financial statements should be prepared on the accrual basis. Relevant information is as follows: The furniture and equipment were acquired in July 2019. The estimated life is 10 years. The 12% promissory note is dated April 2020 and matures in one year. Interest is payable on the date of maturity. The accounts receivable as of December 31, 2020, and 2019 are P750,000 and P500,000, respectively. Accrued rent on December 31, 2020, is P100,000. Unused office supplies as of December 31, 2020, and 2019 are P250,000 and P300,000, respectively.
Required: Adjusting entries to convert the records to accrual basis of accounting.
Income statement
Statement of financial position