ACTIVITY NO.

2
PREPARATION OF ADJUSTING ENTRIES

Problem No 1:

The Brighter Life Enterprise (BLE)  presented the following information pertaining to accounts
that will need adjustments for its December 31, 2020 year-end financial statements:

 On October 1, 2020, the BLE paid P10,800 for insurance covering a six-month period
expiring on March 31, 2021. This was recorded under prepaid insurance

Journal entry on payment:

Prepaid insurance 10, 800
Cash 10,800

Paid insurance on cash

Adjustment on Dec. 31:

Insurance expense 5, 400
Prepaid insurance 5, 400

 On September 24, 2020, supplies purchased amounting to P32,000 were recorded under
Office Supplies. Based on the count performed at year-end, remaining supplies on hand has
a value of P12,000.

Journal entry on payment:

Office supplies 32, 000
Cash 32, 000

Purchased office supplies on cash

Adjustment on Dec. 31:

Supplies expense 20, 000
Office supplies 20, 000

 On November 1, 2020, the BLE received P22,800 from a customer for services to be
rendered until February 28, 2021.amount received was recorded as unearned service
revenue

Journal entry on payment:

Cash 22, 800
Unearned service revenue 22, 800

Received pre-payment from customer

Adjustment on Dec. 31:

Unearned service revenue 3, 800
Service revenue 3, 800
 Office equipment costing P352,800 were purchased on April 1, 2020. The equipment is
expected to last for four years with no expected salvage value, and is depreciated using the
straight-line method.

Journal entry on payment:

Office equipment 352, 500
Cash 352, 500

Purchased office equipment on cash

Adjustment on Dec. 31:

Depreciation expense 70, 560
Accumulated depreciation 70, 560

 The BLE has a practice of paying part-time employees on the fifth day following the end
of each month. Unpaid salaries of part time employees as of December 31, 2020 totalled
P57,500.

Journal entry on payment:

Unpaid salaries 57, 500
Cash 57, 500

Paid insurance on cash

Adjustment on Dec. 31:

Salaries expense 11, 500
Accrued Salaries payable 11, 500

Requirement:

Prepare the adjusting entries for the year-ended December 31, 2020.

Problem No. 2:

Prepare the adjusting entries for C. Gambas Trading (CGT) under each of the following items for
the year ending December 31, 2020:

 Paid P24,000 for a 1-year fire insurance policy commencing on January 1, 2021. The
amount of premium was debited to Insurance Expense.

Journal entry on payment:

Insurance expense 24, 000
Cash 24, 000

Paid fire-insurance on cash

Adjustment on Dec. 31:
Prepaid insurance 22, 000
Insurance expense 22, 000

 Borrows P100,000 by issuing a 1-year note bearing an annual interest rate of 12% to San
Marino Savings Bank on October 1, 2020.

Journal entry on payment:

Cash 100, 000
Notes payable 100, 000

Borrowed cash through notes payable

Adjustment on Dec. 31:

Interest expense 1, 000
Accrued interest expense 1, 000

 Paid P230,000 to purchase a delivery van January 1, 2020. The van is expected to be
used for three year, and may be sold at the end of its useful life for P20,000. Depreciation if
computed using the sum-of-years digit method.

Journal entry on payment:

Delivery van 230, 000
Cash 230, 000

Purchased delivery van

Adjustment on Dec. 31:

Depreciation expense 105, 000/8, 750
Accumulated depreciation 105, 000/8,750

 Received P24,000 as advance payment from a customer on a contract to provide future

services. The contract is effective for a 1-year period, starting May, 2021. The amount
received is credited to Service Income.

Journal entry on payment:

Cash 24, 000
Service income 24, 000

Received cash from customer as advance payment

Adjustment on Dec. 31:

Service income 12, 000/22,000
Unearned Service income 12, 000/ 22, 000

 Purchase P6,400 supplies on account and charged to Office Supplies. At year-end,

P2,500 of these supplies were used up.

Journal entry on payment:

Office supplies 6, 400
Accounts payable 6, 400
Purchased office supplies on account

Adjustment on Dec. 31:

Office supplies expense 2, 500
Office supplies 2, 500

 On April 1, placed P90,000 cash in a 1-year time deposit that pays an annual interest of
5%.

Journal entry on payment:

Bank deposit 90, 000
Cash 90, 000

Deposit cash

Adjustment on Dec. 31:

Interest expense 375/3,375
Accrued Interest expense 375/ 3, 375

 On September 1, paid P36,000 cash in advance on a six-month lease of office space that
will commence on October 1. The amount paid is charged to Rent Expense.

Journal entry on payment:

Rent expense 36, 000
Cash 36, 000

Paid lease of office supplies in advance with cash

Adjustment on Dec. 31:

Rent expense 18,000
Prepaid rent 18, 000

Problem No. 3:

Listed below is the information related to the activities of B. Alvarado Enterprises (BAE) that
require adjustment for the June 30, 2020 year-end financial statements:

 BAE entered into a lease agreement with Evangelista Company on January 1, 2020 for
rental of office space for the three years for P156,000. A second lease was signed on May 1,
2020 for parking space for six month, paying P56,400 in advance. The advance payment was
charged to the rent expense account

Journal entry on payment:

Rent expense 156, 000
Cash 156, 000
Parking space expense 56, 400
 Cash 56, 400

Paid rent of office space on cash

Adjustment on Dec. 31:

Prepaid Rent 26, 000
Rent expense 26, 000
Prepaid parking space 18, 800
Parking space expense 18, 800

 Office supplies amounting to 165,200 were acquired during the year, of which P143,720
were consumed. BAE records its office supplies upon purchase on the office supplies
account.

Journal entry on payment:

Office supplies 165,200
Cash 165,200

Purchased office supplies on cash

Adjustment on Dec. 31:

Supplies expense 143, 720
Prepaid office supplies expense 143, 720

 BAE received advance payment for magazine subscriptions  amounting to P708,000

through-out the year and these were recorded under Subscription Income. At year-end, it
was determined that the company has yet to deliver future magazine subscriptions totalling
P298,000.

Journal entry on payment:

Cash 708, 000
Subscription income 708, 000

Purchased office supplies on cash

Adjustment on Dec. 31:

Subscription income 298, 000
Unearned Subscription income 298, 000

 On December 1, 2019, BAE acquired computer sets for P131,400. The brochure provided
by the seller indicates that the computer can be used for ten years, however, management
deemed that it might only be useful for five year due to heavy usage on a daily basis.
Additionally, BAE depreciates its computers using the straight-line method with 10% of the
cost expected to be received on eventual sale.

Journal entry on payment:

Computer set 131, 400
Cash 131, 400

Purchased computer set on cash

Adjustment on Dec. 31:
Depreciation expense 23, 652
Accumulated depreciation 23, 652

 BAE’s payroll cut-off for its office staff iis every 12th and 26th day of the month. There
are five workdays within a workweek (Monday to Friday). The last payday was on June 26th
(Friday). Unpaid payroll corresponding to the workdays from the last paday until June 30 is
accrued at year-end. BAE has a total of 36 office staff that is paid P450 per day.

Journal entry on payment:

Computer set 131, 400
Cash 131, 400

Purchased computer set on cash

Adjustment on Dec. 31:

Salaries expense 81, 000
Accrued Salaries payable 81, 000

 BAE borrowed P1,000,000 from Dayrit Development Bank on June 1, 2019 and issued a
12% three-year note payable. Interest is computed on a monthly basis and is paid on a 5th
day of the following month. The last interest payment made on was on June 5, 2020 for
interest computed for the month of May 2020.

Journal entry on payment:

Computer set 131, 400
Cash

Borrowed cash from bank

Adjustment on Dec. 31:

Salaries expense 81, 000
Accrued Salaries payable 81, 000

Requirement:

Prepare the adjusting entries.