DISCLAIMER for STUDENTS and TEACHERS

In this problem, let us assume that…

• The sole proprietorship type of business is used for simplicity of the equity balances and capital
statement, but…
• The income statement presented the use of a 30% tax rate applicable for corporate entities
(only to present net income after tax payments in the calculation).

In reality, however…

There are differing tax rates and methods for sole proprietorships and corporate entities which will be
discussed in higher accounting and tax subjects.
SEOUL STREET COMPANY
Statements of Financial Postion
December 31, 2020 and 2019

Note 2020 2019

ASSETS
Current assets
Cash and cash equivalents 3 P 5,909,500 P 3,890,000
Trade and other receivables 4 1,280,000 1,160,000
Merchandise inventory 5 2,750,000 2,700,000
Prepayments and other current assets 6 410,000 640,000
Total current assets 10,349,500 8,390,000

Noncurrent assets
Property, plant, and equipment 7 3,412,000 1,945,000
Investment property 8 7,600,000 7,800,000
Total noncurrent assets 11,012,000 9,745,000

TOTAL ASSETS P 21,361,500 P 18,135,000

LIABILITIES AND EQUITY

Current liabilities
Trade and other payables 9 P 4,050,000 P 2,710,000
Accrued expenses 10 209,000 170,000
Income tax payable 978,900 1,615,500
Total current liabilities 5,237,900 4,495,500

Noncurrent liabilities
Long-term notes payable 900,000 500,000
Other long-term liabilities 200,000 200,000
Total noncurrent liabilities 1,100,000 700,000
Total liabilities 6,337,900 5,195,500

Owner's Equity 15,023,600 12,939,500

TOTAL LIABILITIES AND CAPITAL P 21,361,500 P 18,135,000

SEOUL STREET COMPANY
Statements of Comprehensive Income
For the years ended December 31, 2020 and 2019

Note 2020 2019

Net sales 11 P 8,460,000 P 8,910,000

Less: Cost of goods sold 13 - 3,680,000 - 2,290,000
Gross profit 4,780,000 6,620,000
Add: Other income 500,000 300,000
Total revenue 5,280,000 6,920,000
Less: Operating expenses 14 - 2,017,000 - 1,535,000
Net income before tax 3,263,000 5,385,000
Income tax expense - 978,900 - 1,615,500
Net income P 2,284,100 P 3,769,500
SEOUL STREET COMPANY
Statements of Changes in Equity
For the years ended December 31, 2020 and 2019

2020 2019

Capital, beginning of year P 12,939,500 P -

Add: Investment by the owner - 9,300,000
Add: Net income 2,284,100 3,769,500
Less: Withdrawals - 200,000 - 130,000
Capital, end of year P 15,023,600 P 12,939,500
SEOUL STREET COMPANY
Statements of Cash Flows
For the years ended December 31, 2020 and 2019

2020 2019
Cash flows from operating activities
Net income P 2,284,100 P 3,769,500
Add: Depreciation expense 313,000 305,000
Opeating income before working capital changes 2,597,100 4,074,500
Change in trade receivables - 120,000 - 1,160,000
Change in inventories - 50,000 - 2,700,000
Change in prepayments and other current assets 230,000 - 640,000
Change in trade payables 1,340,000 2,710,000
Change in accrued expenses 39,000 170,000
Change in income tax payable - 636,600 1,615,500
Net cash flow from operating activities 3,399,500 4,070,000

Cash flows from investing activities

Purchase of land - 1,500,000 - 1,000,000
Purchase of automobile - - 900,000
Purchase of equipment - - 70,000
Purchase of furniture - 80,000 - 80,000
Purchase of investment property - Bulacan - - 3,000,000
Purchase of investment property - Pangasinan - - 5,000,000
Net cash flow from investing activities - 1,580,000 - 10,050,000

Cash flows from financing activities

Long-term notes payable 400,000 500,000
Other borrowings - 200,000
Cash investment - 9,300,000
Withdrawals - 200,000 - 130,000
Net cash flow from financing activities 200,000 9,870,000

Net cash flow 2,019,500 3,890,000

Add: Cash, beginning of period 3,890,000 -
Cash, end of period P 5,909,500 P 3,890,000
SEOUL STREET COMPANY
Notes to Financial Statements

2020 2019
Note 3 - Cash and cash equivalents
Cash on hand P 160,000 P 90,000
Cash in bank - SA 1009896787 5,699,500 3,750,000
Revolving fund 50,000 50,000
Total P 5,909,500 P 3,890,000

Note 4 - Trade and other receivables

Trade accounts receivable P 1,160,000 P 1,120,000
Other receivables 120,000 40,000
Total P 1,280,000 P 1,160,000

Note 5 - Merchandise inventory

Inventories - albums P 900,000 P 1,200,000
Inventories - merchandise 1,850,000 1,500,000
Total P 2,750,000 P 2,700,000

Note 6 - Prepayments and other current assets

Prepaid rent P 200,000 P 300,000
Prepaid insurance 120,000 200,000
Office supplies 30,000 50,000
Store supplies 60,000 90,000
Total P 410,000 P 640,000
Note 7 - Property, Plant, and Equipment
Asset balances
Furniture and
Land Automobile Equipment Fixtures Total
Balances, January 1, 2019 P - P - P - P - P -
Additions during 2019 1,000,000 900,000 70,000 80,000 2,050,000
Retirements during 2019 - - - - -
Balances, December 31, 2019 1,000,000 900,000 70,000 80,000 2,050,000
Additions during 2020 1,500,000 - - 80,000 1,580,000
Retirements during 2020 - - - - -
Balances, December 31, 2020 P 2,500,000 P 900,000 P 70,000 P 160,000 P 3,630,000

Accumulated depreciation balances

Balances, January 1, 2019 P - P - P - P -
Depreciation during 2019 90,000 7,000 8,000 105,000
Retirements during 2019 - - - -
Balances, December 31, 2019 90,000 7,000 8,000 105,000
Depreciation during 2020 90,000 7,000 16,000 113,000
Retirements during 2020 - - - -
Balances, December 31, 2020 P 180,000 P 14,000 P 24,000 P 218,000

Carrying amounts
December 31, 2019 P 1,000,000 P 810,000 P 63,000 P 72,000 P 1,945,000
December 31, 2020 P 2,500,000 P 720,000 P 56,000 P 136,000 P 3,412,000
Note 8 - Investment property

Asset balances
Bulacan Pangasinan Total
Balances, January 1, 2019 P - P - P -
Additions during 2019 3,000,000 5,000,000 8,000,000
Retirements during 2019 - - -
Balances, December 31, 2019 3,000,000 5,000,000 8,000,000
Additions during 2020 - - -
Retirements during 2020 - - -
Balances, December 31, 2020 P 3,000,000 P 5,000,000 P 8,000,000

Accumulated depreciation balances

Balances, January 1, 2019 P - P - P -
Depreciation during 2019 75,000 125,000 200,000
Retirements during 2019 - - -
Balances, December 31, 2019 75,000 125,000 200,000
Depreciation during 2020 75,000 125,000 200,000
Retirements during 2020 - - -
Balances, December 31, 2020 P 150,000 P 250,000 P 400,000

Carrying amounts
December 31, 2019 P 2,925,000 P 4,875,000 P 7,800,000
December 31, 2020 P 2,850,000 P 4,750,000 P 7,600,000
 2020 2019
Note 9 - Trade and other payables
Trade accounts payable P 3,050,000 P 2,260,000
Other payables 1,000,000 450,000
Total P 4,050,000 P 2,710,000

Note 10 - Accrued expenses

Accrued salaries P 70,000 P 60,000
Accrued utilities 85,000 80,000
Accrued interest 54,000 30,000
Total P 209,000 P 170,000

Note 11 - Net Sales

Gross sales P 8,500,000 P 9,000,000
Less: Sales returns and allowances - 20,000 - 40,000
Sales discount - 20,000 - 50,000
Net sales P 8,460,000 P 8,910,000

Note 12 - Net Purchases

Gross purchases P 3,500,000 P 5,000,000
Add: Transportation-in 350,000 200,000
Total purchases 3,850,000 5,200,000
Less: Purchase returns and allowances - 20,000 - 10,000
Purchase discount - 100,000 - 200,000
Net purchases P 3,730,000 P 4,990,000
Note 13 - Cost of goods sold
Inventory, beginning of year P 2,700,000 P -
Add: Net purchases (Note 12) 3,730,000 4,990,000
Cost of goods available for sale 6,430,000 4,990,000
Less: Inventory, end of year - 2,750,000 - 2,700,000
Cost of goods sold P 3,680,000 P 2,290,000

Note 14 - Operating expenses

Transportation-out P 400,000 P 150,000
Salaries expense 520,000 360,000
Utilities expense 500,000 480,000
Rent expense 100,000 100,000
Insurance expense 80,000 80,000
Interest expense 54,000 30,000
Office supplies expense 20,000 10,000
Store supplies expense 30,000 20,000
Depreciation expense - automobile 90,000 90,000
Depreciation expense - equipment 7,000 7,000
Depreciation expense - furniture and fixtures 16,000 8,000
Depreciation expense - Bulacan IP 75,000 75,000
Depreciation expense - Pangasinan IP 125,000 125,000
Total P 2,017,000 P 1,535,000