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:

Item #1

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

Date Account Debit Credit

12/31/2020 Paid insurance on cash
Prepaid Expense 5,400
Prepaid Insurance 5,400

Item #2
 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.

Date Account Debit Credit

12/31/2020 Purchased office supplies on cash
Supplies Expense 20,000
Office Supplies 20,000
Item #3
 On November 1, 2020, the BLE received P22,800 from a customer for services to be
rendered until February 28, 2021.

Date Account Debit Credit

12/31/2020 Received pre-payment from customer
Unearned service revenue 11,400
Earned Service Revenue 11,400

Item #4
 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.

Date Account Debit Credit

12/31/2020 Purchased office equipment on cash
Depreciation Expense 66,150
Accumulated Depreciation 66,150

Item #5
 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.

Date Account Debit Credit

12/31/2020 Paid insurance on cash

Salaries Expense 11,500

Salaries Payable 11, 500
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:

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

Date Account Debit Credit

12/31/2020 Paid fire-insurance on cash
Prepaid Insurance 2,000
Insurance Expense 2,000

Item #2
 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.

Date Account Debit Credit

12/31/2020 Borrowed cash through notes payable
Interest Expense 3,000
Interest Payable 3,000

Item #3

 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.

Date Account Debit Credit

12/31/2020 Purchased delivery van
Depreciation Expense 105,000
Accumulated Depreciation 105,000
Item #4
 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.

Date Account Debit Credit

12/31/2020 Received cash from customer as advance payment
Service Income 24,000
Unearned Service Income 24,000

Item #5
 Purchase P6,400 supplies on account and charged to Office Supplies. At year-end, P2,500
of these supplies were used up.

Date Account Debit Credit

12/31/2020 Purchased office supplies on account
Supplies Expense 2,500
Office Supplies 2,500

Item #6
 On April 1, placed P90,000 cash in a 1-year time deposit that pays an annual interest of
5%.

Date Account Debit Credit

12/31/2020 Deposit cash
Interest Expense 281.25
Interest Payable 281.25
Item #7
 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.

Date Account Debit Credit

12/31/2020 Paid lease of office supplies in advance with cash
Prepaid Rent 34,500
Prepaid Expense 34,500

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:

Item #1
 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.

Date Account Debit Credit

6/30/2020 Paid rent of office space on cash
Prepaid Rent 167,600
Rent Expense 167,600

Item #2

 Office supplies amounting to 165,200 were acquired during the year, of which P143,720
were consumed.

Date Account Debit Credit

6/30/2020 Purchased office supplies on cash

Supplies Expense 143,720

 Office Supplies 143,720

Item #3

 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.

Date Account Debit Credit

6/30/2020 Purchased office supplies on cash
Subscriptions Income 298,000
Unearned Subscriptions Income 298,000

Item #4

 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.

Date Account Debit Credit

6/30/2020 Purchased computer set on cash

Depreciation Expense 11,826

 Accumulated Depreciation 11,826

Item #5

 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.

Date Account Debit Credit

6/30/2020 Purchased computer set on cash

Salaries Expense 32,400

Salaries Payable 32,400

Item #6

 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.

Date Account Debit Credit

6/30/2020 Borrowed cash from bank
Interest Expense 8,333
Interest Payable 8,333