Chapter 8

Adjusting Entries
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QUIZ:
Items 1 to 6: Multiple Choice
1. Which of the following is incorrect regarding adjusting entries?
a. Adjusting entries involve at least one balance sheet account and one income statement
account.
b. Adjusting entries affect profit or loss.
c. In layman’s terms, “to accrue” means to accumulate, while “to defer” means to postpone.
d. The process of splitting mixed accounts into their expired and unexpired portions or earned
and unearned portions refers to accrual.
e. Adjusting entries are typically prepared only when financial statements are prepared.

2. Which of the following is most likely not considered an adjusting entry?

a. The accrual of an electricity bill for electricity used but not yet paid
b. The recognition of depreciation expense for the period
c. The recognition of the used and unused portions of a prepaid rent
d. The entry to record the collection of interest receivable

3. Which of the following is most likely considered an adjusting entry?

a. The entry to record the payment of interest payable
b. The entry to record the collection of accounts receivable
c. The entry to record the purchase of equipment
d. The entry to record bad debts expense for the period

4. The term “accrual” as used in accounting means

a. to record an income that is already earned but not yet collected.
b. to record an expense that is already incurred but not yet paid.
c. to record the collection of income or the payment of expense.
d. a and b

5. The term “deferral” as used in accounting means

a. to split the earned and unearned portions of an advanced collection.
b. to split the expired and unexpired portions of a prepayment.
c. to record the collection of income or the payment of expense.
d. a and b

6. These accounts are closed at the end of the accounting period.

a. Real accounts
b. Mixed accounts
c. Nominal accounts
d. Door accounts

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Items 7 to 20: Journal entries
7. Entity A received a 10%, ₱200,000, one-year, note receivable on July 1, 20x1. Entity A uses a
calendar year period. The principal and interest on the note are due on July 1, 20x2. What is the
adjusting entry on December 31, 20x1?

8. Entity A issued a 12%, ₱200,000, one-year, note payable on November 1, 20x1. Entity A uses a
calendar year period. The principal and interest on the note are due on November 1, 20x2. What
is the adjusting entry on December 31, 20x1?

9. Your business is renting a space. The monthly rental is ₱120,000. On December 31, 20x1, the rent
for the months of November and December 20x1 are not yet paid. What is the adjusting entry?

10. A business receives its electricity bill for the period amounting to ₱6,000. What is the entry to
record the receipt of the bill prior to its payment?

11. On January 1, 20x1, your business acquires computer equipment for ₱120,000. You expect to use
the computer over the next 3 years. What is the adjusting entry on December 31, 20x1 to take up
depreciation expense?

12. Your business has accounts receivable of ₱300,000. You estimated that out of that amount, 10% is
doubtful of collection. What is the adjusting entry to record the doubtful accounts?

Use the following information for the next four questions:

Your business is renting out properties. On June 1, 20x1, your business receives one-year advanced
rent of ₱360,000 from one of your tenants. The advanced rent covers the months of June 1, 20x1 to
May 31, 20x2.

13. What is the journal entry to record the collection on June 1, 20x1 under the liability method?

14. What is the journal entry to record the collection on June 1, 20x1 under the income method?

15. What is the adjusting entry on December 31, 20x1 under the liability method?

16. What is the adjusting entry on December 31, 20x1 under the income method?

Use the following information for the next four questions:

Your business pays one-year insurance of ₱360,000 on November 1, 20x1.

17. What is the journal entry to record the prepayment on November 1, 20x1 under the asset
method?

18. What is the journal entry to record the prepayment on November 1, 20x1 under the expense
method?

19. What is the adjusting entry on December 31, 20x1 under the asset method?

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20. What is the adjusting entry on December 31, 20x1 under the expense method?

“Formal education will make you a living; self-education will make you a
fortune.” - Jim Rohn
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