P2,400

Assuming that the ending inventory is P97,900, the d. Cash P2,400

entry to adjust the inventory accounts would include
a. A de b it t o I nve nt o ry o f P 90 ,3 5 0.
b. A debit to Cost of Goods S old of P 217,080.
c. A cred it to Purc hase Disc ounts o f P 2,14 0.
d. A credit to Purchases Returns of P2 6,710.
10, A company receives interest on a P30,000, 8%, 5-year
note receivable each April 1. At December 31, 2019,
the proper adjusting entry was made to accrue interest
receivable. Assuming that the company does not use
reversing entries, what entry should be made on April
1, 2020 when the annual interest payment is received?
a. Cash P 600
Interest Income
Interest Income
LECTURE NOTES:
Reversing entries
Interest Income
A reversing entry is made at the beginning of the next
a c c o u n t in g p e r io d a n d is t h e e x a c t o p p o s it e o f t h e
adjusting entry made in the previous period,
The entries subject to reversal are:
 A c c r u a l o f in c o m e
 Accrual of expense
 Pr ep ay me nt ( u s ing ex pe n se me th o d ), an d
 Unearned inc ome (us ing in co me met hod).
P 600

b. Cash P1,800
Interest Receivable
P1,800
c. Cash
P2,400
Interest Receivable P1,800
Interest Income 600
DRILL DRILL
1. The beginning-of-the-year total equity for a firm was c . Debit insur ance expense for P6 7,50 0 a nd c redit
P40,000. During the year, the firm issued ordinary prepaid insurance for P67,500.
shares for a total proceeds of P20,000, earned P20,000 d. Debit insurance expense for P23,100 and credit
net in come, and pa id P 5,00 0 in cash div idends . If prepaid insurance for P23,100.
ending total liabilities are P100,000, what is ending
total assets? 5. Daguioman Company received P9,600 on April 1, 2019
a. P165,000 c. P1 75,0 00 f o r o n e ye a r ' s re n t in ad v a n ce a n d r e c o rd ed th e
b P 45,000 d. P 1 0 0, 0 00 transaction with a credit to a nominal account. The
December 31, 2019 adjusting entry is
a. de bit Re nt I nc o me and cred it Un ear ned R ent,
2. Moon Company purchased equipment on November 1, P2,400.
2019, by giving its supplier a 12-month, 9 percent b . d e b it R e n t I n c o m e a n d c r e d it U n e a r n e d R e n t ,
note with a face value of P48,000. The December 31, P7, 200.
2019, adjusting entry is r , a e b it U n e a r n e d R e n t a n d c r e d it R e n t I n c o m e ,
a. debit Interest Expense and credit Cash, P720. P2,400.
b. debit Interest Expense and credit Interest d . de b it U n ea r n ed R e n t a n d c re d it Re n t I n c o m e,
Payable, P720. P7,200.
c. debit Interest Expense and credit Interest
Payable, P1,080. 6. Dunlap Company sublet a portion of its warehouse for
d. debit Interest Expense and credit Interest 5-years at an annual rental of P15,000, beginning on
Payable, P4,320. March 1. The tenant paid 1 year's rent in advance,
which Dunlap recorded as a credit to unearned rental
3. Rice Corporation loaned P60, 000 to a nother income. Dunlap reports on a calendar-year basis. The
corporation on December 1, 2019 and received a '3- adjustment on December 31, of the first year should
month, 8% interest-bearing note with a face value of be
P60,000. What adjusting entry should Rice make on a. No entry.
December 31, 2019? b. Unearned rental income P2,500
a. Debit Interest Re ceivab le and credit I nterest
Rental income P2,500
Income, P1,200. c. Rental income P2,500
b. Debit Cash and credit Interest Income, P400. Unearned rental income P2, 500
c. Debit Interest Re ceivab le and credit I nterest d. Unearned rental income P12,500
Income, P400. Rental income P12,500
d. Debit Cash and credit Interest Receivable: P1,200.

4, Gehrig Corporation renewed an insurance policy for 3 7. A 3-year insurance policy was purchased on October 1
f o r P 6 , 0 0 0 , a n d p r e p a id in s u r a n c e w a s d e b it e d .
years beginning July 1, 2019 and recorded the P81,000
As s u m in g a De ce mb er 3 1, ye ar -e nd , w ha t is t he
p r e m i u m i n t h e p r e p a id in s u r a n c e a c c o u n t . T h e
reversing entry at the beginning of the next period?
P81,000 premium represents an increase of P23,400
a. None is required.
fro m t he P 5 7,6 0 0 pre m iu m c har ged 3 yea rs a go.
b. Prepaid insurance P5,500
Assuming Gehrig's records its insurance adjustments
Prepaid insurance P5,500
only at the end of the calendar year, the adjusting
entry required to reflect the proper balances in the c. Prepaid insurance P500
insurance accounts at December 31, 2019, Gehrig's Insurance expense P500
year-end is to d. Insurance expense P500
a. Debit insurance expense for P13,500 and credit Prepaid insurance P500
prepaid insurance for P13,500.
'b. Debit prepaid insurance for P13,500 and credit
insurance expense for P13,500
SUGGESTED ANSWER

9. B
10. C

DRILL

1. C
2. B
3. C
4. D
5. A
6. D
7. A