Professional Documents
Culture Documents
EXERCISES:
1. In analyzing the accounts of Arenn Corporation, the adjusting data listed below are determined on
December 31, the end of the annual fiscal period.
a. The prepaid insurance account shows a debit balance of P4,800, representing the cost of 2-year fire
insurance dated July 1.
b. On September 1, Rent Revenue was credited for P5,750, representing revenue from subrental for a 5-
month period beginning on that date.
c. Purchase of advertising materials for P2,475 during the year was recorded in the advertising expense
account. On December 31, advertising materials costing P475 are on hand.
d. On November 1, P3,000 was paid for rent for a 5-month period beginning on that date. The rent
expense was debited.
e. Miscellaneous Office Expense was debited for office supplies of P1,350 purchased during the year.
On December 31, office supplies of P250 are on hand.
b 1,1
Rent Revenue
) 50
Unearned Rent 1,1
Revenue 50
(5,750 / 5mo. =
1,150)
c
Adverting Materials 475
)
Advertising
475
Expense
d 1,8
Prepaid Rent
) 00
1,8
Rent Expense
00
(3,000 / 5mo. = 600
X 3mo. = 1,800)
e
Office Supplies 250
)
Miscellaneous
250
Office Expense
f
Interest Expense 428
)
Interest Payable 428
2. The following accounts were taken from the trial balance of Ernan Company as of December 31, 2019:
Sales P 90,000
Interest Revenue 5,000
Equipment 46,000
Accumulated depreciation-equipmen 12,000
Beginning inventory 20,000
Advertising expense 2,000
Selling expense 6,000
Interest expense 1,000
a. The equipment has an estimated useful life of 9 years and a salvage value of P1,000. Straight-line
method is used.
b. Ending inventory is P28,000. Purchases for the year totaled P120,000. The periodic system for
inventory is used.
3. The accountant for You Can Save Company made the following adjusting entries on December 31, 2019.
For each adjusting entry, indicate the original transaction entry that was recorded.
Solution:
20
19
Oct. 2,40
a) Rent Expense
1 0
2,40
Cash
0
(1,800 ÷ 9 / 12 = 2,400
annual expense)
4,08
b) Jun. 1 Advertising Expense
0
4,08
Cash
0
(1,700 ÷ 5 / 12 = 4,080
annual expense)
Mar. 5,40
c) Cash
1 0
Rent
5,40
Revenu
0
e
(900 ÷ 2 / 12 = 5,400
annual revenue)
2,00
d) Jul. 1 Office Supplies Expense
0
2,00
Cash
0
(1,000 ÷ 6 / 12 = 2,000
annual expense)
Aug. 1,80
e) Insurance Expense
1 0
1,80
Cash
0
(1,050 ÷ 7 / 12 = 1,800
annual expense)
4. The bookkeeper for Thompson Wholesale Electric Company records all revenue and expense items in
nominal accounts during the period. The following balances among others, are listed on the trial balance
at the end of the fiscal period, December 31, 2019, before accounts have been adjusted:
Dr. (Cr.)
Inspection of the company’s records reveals the following as of December 31, 2019:
a. Uncollectible accounts are estimated at 4% of the accounts receivable balance.
b. The accrued interest on investments totals P2,200.
c. The company borrows cash by discounting its own notes at the bank. Discounts on notes payable at
the end of 2019 are P1,400.
d. Prepaid taxes are P1,800, the same as at the end of 2018.
e. Accrued salaries and wages are P6,200.
f. The company accepts notes from customers, giving its customers credit for the face of the note less a
charge for interest. At the end of each period, any interest applicable to the succeeding period is
reported as a discount. Discounts on notes receivable at the end of 2019 are P1,900.
g. Part of the company’s properties had been sublet on September 15, 2019, at a rental of P3,000 per
month. The arrangement was terminated at the end of one year.
b Interest
600
) Receivable
Interest Revenue 600
d No adjustment
) required.
f Discount on Notes
900
) Receivable
Interest Revenue 900