Problem 1 – Prepayments

The following information was discovered in connection with the Dec 31. 2020 examination of the
accounts of Good Inc.

a. December 31, 2020 Prepayment of advertising contract for 2020 was debited to advertising
b. Balance of the office supplies expense account, Dec, 31, 2020, P500,000.
Balance of office supplies on hand account, Dec. 31, 2020, P50,000.
Inventory value of office supplies Dec. 31, 2020, P75,000.
c. June 1, 2020 – Payment of 3, year insurance policy for fire loss on inventory was charged to
prepaid insurance, P180,000.
d. Balance of factory supplies expense account, Dec 31, 2020 P330,000. Physical inventory of
factory supplies Dec, 31, 2020 is P110,000.
e. On May 1, 2020 a 3 year subscription to the Professional Journal in the amount of P5,400 was
paid. Dues and subscription expense was charged to the entire amount.
f. The company leases the building it is occupying at an annual rental of P300,000. It paid a
security deposit equivalent to 3 months rental and one year advance rental totaling P375,000 on
June 25, 2020 effective July 1, 2020. These were booked as Prepaid rent.
g. Paid annual dues of P5,000 on Sept 1. 2020 to the Chamber of Commerce and charged to Dues
and Subscription expense
Required: Prepare the proposed adjusting and explanation for the above information.

Problem 2 Liabilities

a. Salaries which are paid on the 15 th of the each month, were P135,700 for the period ended Dec.
31, 2020
b. BJ purchased P275,000 of inventory between Dec 23 and 31. 85% of the purchases were on
account . all purchases on account have terms of 3/12, net 30. BJ has a perpetual inventory
system and records accounts payable net of discount . no accounts were paid on Dec. 31, 2020
c. On Nov. 15, BJ borrowed cash from a local savings and loan bank in exchange for a 90 day
P2,000,000 note discounted at 12%.
d. December sales were P782,880, including a 12% sales tax that must be paid to the government
during the first quarter of 2021.
e. On Dec 1, 2020 a P550,000 forklift truck was purchased for use in the warehouse. The
equipment was paid for with P150,000 cash and by signing a P400,000, one year, 10% note.
f. During 2020, estimated income tax expense of P78,750 were paid each quarter. On Dec. 31,
2020, it was determined that actual income tax expense or both accounting and tax return for
2020 was P347,500.

Required:
1. Prepare the necessary journal entries to record the above transactions
2. Prepare 2020 year end adjusting entries related to interest on notes payable