New Era University College of Accountancy

FUNDAMENTALS OF ACCOUNTING ADJUSTING ENTRIES - EXERCISE 1

The trial balance of Gian Consulting as of June 30, 2019 is shown below:
Cash P 250,000
Accounts receivable 400,000
Allowance for doubtful accounts P 25,000
Notes receivable 300,000
Office supplies 25,000
Furniture and equipment 350,000
Accumulated depreciation 145,000
Accounts payable 220,000
Notes payable 250,000
Gian, capital 480,000
Gian, drawing 25,000
Service revenue 650,000
Rent income 30,000
Salary expense 160,000
Insurance expense 12,000
Interest expense 24,000
Rent expense 120,000
Utilities expense 26,000
Miscellaneous expense 8,000
---------------- ----------------
P 1,800,000 P1,800,000
========= =========
Upon review of the accounting records of Gian Consulting on June 30, 2019, the

following information relevant to the preparation of adjusting entries are revealed:

a) There are two notes payable in the records:

(1) the 120-day note for P50,000 dated May 1, 2019 which carries interest at 12% per

annum; and (2) the 1-year note signed with a bank for P200,000 which was discounted

at 12% per annum dated April 1, 2019.

1) June 30, 2019

Interest expense 1,000

Interest payable 1,000

2) June 30, 2019

Interest expense 6,000

Discount on note payable 6,000

b) The company purchased insurance policy for its service equipment and paid

premium of P12,000. The insurance’s effectivity is on February 1, 2019.

Feb. 1, 2019

Insurance expense 12,000

Cash 12,000

June 30, 2019

Prepaid insurance 5,000

Insurance expense 5,000

c) Gian has rented out a space of its rented office space for P5,000 per month. The sub-

lessee paid advance rental for six (6) months which commenced on May 1, 2019.
May 1, 2019

Cash 30,000

Unearned rent income 30,000

June 30, 2019

Unearned rent income 20,000

Rent income 20,000

d) There are three salaried employees. Salaries are disbursed on the third day of the

following month. Two employees receive a salary of P10,000 per month each while the

other employees is paid P12,000 per month.

June 30, 2019

Salaries expense 32,000

Salaries payable 32,000

e) Gian had transferred to its new office and paid one-year rent at P10,000 per month

effective February 1, 2019.

Feb. 1, 2019

Rent expense 120,000

Cash 120,000

June 30, 2019

Prepaid rent 70,000

 Rent expense 70,000

f) The furniture and equipment of the business have estimated useful lives of 5 years

from acquisition date. These were acquired last year, except for an equipment

amounting to P60,000 which was just acquired on April 1, 2019. None of the assets has

any residual value at the end of its useful life.

June 30, 2019

Depreciation expense - F&E 61,000

Accumulated depreciation - F&E 61,000

g) The notes receivable represents a 60-day, 9% promissory note issued by a client

dated May 31, 2019.

June 30, 2019

Interest receivable 2,250

Interest income 2,250

h) Gian estimated its doubtful account to be at 10% of its accounts receivable.

June 30, 2019

Doubtful accounts expense 15,000

Allowance for doubtful accounts 15,000

i) Based on physical count, the office supplies on hand amounted to P15,000.

June 30, 2019

Office supplies expense 10,000

Office supplies 10,000

Required: Journalize the adjusting entries at June 30, 2019.

FUNDAMENTALS OF ACCOUNTING ADJUSTING ENTRIES – EXERCISE 2

Based on the given independent situations, prepare the necessary adjusting entries at

December 31, 2019.

1. On April 1, 2019, Angelo Company purchased a one-year fire insurance policy for

P9,000 and debited this amount to Prepaid insurance.

April 1, 2019

Insurance expense 2,250

Prepaid insurance 2,250

2. On November 1, 2019, Benjamin Ent. received P18,000 from the tenant of office

space owned by Benjamin Ent. as payment for the 6 month's rent effective on the same

date and credited this amount to Unearned rent revenue.

Dec. 31, 2019

Unearned rent income 6,000

Rent income 6,000

3. When Isaiah Company purchases office supplies, it debits Office supplies on hand. At

December 31, 2019, the pre-adjustment balance of that account is P29,850. At physical

count at December 31, 2019, determines that P4,300 of office supplies is on hand.

Dec. 31, 2019

Office supplies expense 25,550

Office supplies 25,550

4. On December 1, 2019, Jeremiah Company accepted a 3-month, 9% note for P60,000

from a customer in settlement of an account receivable.

Dec. 31,2019

Interest receivable 450

Interest income 450

5. On July 1, 2019, Paul Company purchased some office equipment for P139,000. The

equipment is being depreciated over an expected useful life of 6 years, with an

estimated residual value of P13,000.

Dec. 31, 2019

Depreciation Expense - OE 10,500

Accumulated depreciation- OE 10,500

6. On November 6, 2019, Peter Company received P35,000 from a customer for

consulting services to be rendered and credited this amount to Unearned consulting

fees. By December 31, 2019, only 80% of the consulting engagement had been

completed.

Dec. 31, 2019

Unearned consulting fees 28,000

Consulting fees 28,000

7. Miriam Company had received its electric bill for December 2019 on January 5, 2020.

It shows consumption of P6,200.

Dec. 31, 2019

Electric Bill expense 6,200

Electric bill payable 6,200

8. Guests at the Sinai Hotel are expected to pay for their lodging when they check out of

their rooms. At December 31, 2019, rental fees owed by guest who still occupied their

rooms amounted to P25,150.

Dec. 31, 2019

Rental fees receivable 25,150

Rental fees income 25,150

9. On November 1, 2019, Moses Company paid rent on its office facilities for November

2019 to January 2020, debiting P24,000 to Prepaid rent.

Nov. 1, 2019

Prepaid rent expense 24,000

Cash 24,000

Dec. 1, 2019

Rent expense 16,000

Prepaid rent expense 16,000

10. On April 1, 2019, Seth Company had issued a P50,000, 1-year, 10% note to a

supplier. Interest is to be paid upon settlement of the note.

Dec. 31, 2019

Interest expense 3,750

Interest payable 3,750

FUNDAMENTAL OF ACCOUNTING ADJUSTING ENTRIES – EXERCISE 3

Prepare the adjusting journal entries on December 31, 2019 based on the following

independent assumptions:

1. The company’s records show the following balances as at December 31, 2019:

Dr. Cr.

Accounts receivable P 300,000

Allowance for doubtful accounts 10,000

Revenue 1,000,000

The Company estimated its doubtful accounts at 5% of Accounts receivable. Dec. 31,

2019

Doubtful accounts 5,000

Allowance for doubtful accounts 5,000

2. There were three notes in the company’s possession, details follow:

a.) A 60-day 6% note for P60,000 dated December 31, 2019.

b.) A 90-day 9% note for P90,000 dated December 1, 2019.

c.) A 150-day note for P150,000 discounted at 15% on November 1, 2019.

a.) Dec. 31, 2019 – no entry

b.) Dec. 31, 2019

Interest receivable 675

Interest income 675

c.) Dec. 31, 2019

Interest receivable 3,750

Interest income 3,750

3. Physical count of supplies at the end of the year revealed the balance of P20,000.

The Unused store supplies account had a beginning balance of P15,000. During the

year, the company purchased store supplies amounted to P30,000.

Dec. 31, 2019

Supplies expense 25,000

Unused supplies 25,000

4. Information on property and equipment were as follows:

Cost Estimated Life

Land P5,000,000 50 years

Building 3,000,000 20 years

Furniture and equipment 500,000 5 years

An equipment costing P50,000 was only purchased on October 1, 2019.

Dec. 31, 2019

Depreciation expense 242,500

Accumulated depreciation- Building 150,000

Accumulated depreciation- F&E 92,500

5. The following are the notes issued by the company:

a.) A 90-day 6% note for P40,000 dated December 31, 2019.

b.) A 120-day 12% note for P50,000 dated November 16, 2019.

c.) A 180-day note for P100,000 discounted at 12% on October 17, 2019.

a.) Dec. 31, 2019 – no entry

b.) Dec. 31, 2019

Interest expense 750

Interest payable 750

c.) Dec. 31, 2019

Interest expense 2500

Interest payable 2500

6. Unpaid bills as of the end of the year were as follows:

PLDT P10,000

Meralco 20,000

Dec. 31, 2019

Utilities expense 30,000

Bills payable 30,000

7. Unearned rental account amounting to P30,000 represents a 3-month advance rental

paid by the sub-lessee on December 1, 2019.

Dec. 1, 2019

Cash 10,000

Unearned rent revenue 10,000

Dec. 31, 2019

Unearned rent revenue 20,000

Rent revenue 20,000

8. Insurance expense account represents the following:

a.) An insurance on building amounting to P36,000 effective March 31, 2019. b.) An

insurance on vehicle amounting to P24,000 effective August 1, 2019.

a.) Dec. 31, 2019

Unexpired Insurance-Building 9,000

Insurance expense-Building 9,000

b.) Dec. 31, 2019

Unexpired Insurance-Vehicle 14,000

Insurance expense-Vehicle 14,000

9. Royalty income account amounting to P120,000 is for a 6-month advance payment

made by a franchisee commencing September 1, 2019.

Dec. 31, 2019

Royalty income 80,000

Unearned Royalty income 80,000

10. Prepaid rent account amounting to P240,000 represents a 12-month advance rental

paid on February 1, 2019. The lease took effect on March 1, 2019.

Dec. 31, 2019

Rent expense 200,000

Prepaid rent 200,000