Chapter 7 - Mix - 01

EXERCISE 02. Make the entry to record the following adjustments at the end of the
accounting period:
a. Accrued commission income of P10,000.
b. Accrued utility expense of P5,000.
c. Bad debts of P1,500 under the allowance method.
d. Bad debts of P2,000 under the direct write-off method.
e. Depreciation of equipment for P3,500.
f. Expired insurance of P4,000 under the asset method.
g. Earned rental of P6,000 under the liability method.
EXERCISE 03. Refer to EXERCISE 02 “f” and “g”
a. What will be the entry if this is under the expense method? Total payment was
P12,000.
b. What will be the entry if this is under the expense method? Total payment was
P10,000.

ADJUSTING ENTRIES
a. To record accrued commission income: 10,000.0
0
Commission Receivable 10,000.00
Commission Income
or:
Accrued Commission Income 10,000.0
0
Commission Income 10,000.00

b. To record accrued utilities expense:

Utilities Expense 5,000.00
Utilities Payable 5,000.00
or:
Utilities Expense 5,000.00
Accrued Utilities Expense 5,000.00

c. To record bad debts expense (allowance method):

Bad Debts Expense 1,500.00
Allowance for Bad Debts 1,500.00

d. To record bad debts expense (direct write-off method):

Bad Debts Expense 2,000.00
Accounts Receivable 2,000.00

TIPS:
ACCRUED INCOME ASSET Interest Receivable Debit SFP
INCOME Interest Income Credi IS
t
Commission Receivable = Accrued Commission Income
Receivable = Accrued Income

Utilities Payable = Accrued Utilities = Accrued Utilities Expense

Payable = Accrued Expense

Chapter 7 - Mix - 02
PROBLEM 10. Prepare the adjusting entries required by the following information made
available to you on December 31, 2018, the end of the accounting period:
a. On December 31, two notes are on hand:
a. P1,500 for 60 days dated December 16, 2018 at 14% was received from a
customer.
b. P1,800, 90 days, issued to BPI on Dec. 1, 2018 discount at 18%. (Asset
Method).
b. The Unexpired Insurance account balance of P23,000 represents premium paid
on a two-year insurance policy taken on December 1, 2017. The expired portion
for the year 2017 has already been adjusted.
c. The business has Accounts Receivables of P14,500 as at the end of 2018. It is
estimated that only 90% of this is collectible. Allowance for Doubtful Accounts
has an adjusted balance of P750.
d. A six-month advertising contract was entered into by the business which required
an advance payment of P2,400 on November 2, 2018 and was debited to
Advertising Expense.
e. Rent income was credited for p18,000 representing three months rent received
from a lessee on October 15, 2018.
f. Office equipment costing P75,000 was purchased on October 1, 2018 and
estimated to have a useful life of five years after which it could be sold for P5,000
g. Supplies Expense has a balance of P9,500 representing supplies purchased
during the year of which only P4,500 has been taken out from the stockroom.
ADJUSTING ENTRIES
aa. To record interest income on notes receivable:
Interest Receivable 8.75
Interest Income 8.74
(P1,500 x 14% 15 / 360) 15

c. To record doubtful accounts expense:

Doubtful Accounts Expense 700.00
Allowance for Doubtful Accounts 700.00
[P14,500 x (100% - 90%)] - 750

c1. To record doubtful accounts expense (with

unadjusted debit balance of P750):
Doubtful Accounts Expense 2,200.00
Allowance for Doubtful Accounts 2,200.00
[P14,500 x (100% - 90%)] + 750

Allowance for Doubtful Accounts Allowance for Doubtful Accounts

750.00 - Beg. Bal. Beg. Bal. - 700.00
700.00 - 2018 Adjustment 2,200.00 - 2018 Adj.
1,450.00 - End. Bal 1,450.00 - End Bal.
 Chapter 7 - Annual Depreciation
Problem 09. White Beach Resort has the following assets as of December 31, 2017.
Date Acquired Useful Life Cost Salvage Value
Building January 1, 2015 10 years P8,000,000 P750,000
Furniture & Fixtures July 1, 2016 5 years P3,500,000 P25,000
Equipment March 1, 2017 8 years P950,000 P50,000
Required:
a. Give the adjusting entries to record depreciation for each asset in 2015, 2016,
and 2017.
b. Give the depreciation expense of each asset for each year.
c. Give the accumulated depreciation of each asset for each year.
d. Explain why there is a difference between the depreciation expense in “b” and
accumulated depreciation of each asset in “c”.
e. Give the entry on March 1, 2018 when the equipment was sold for P500,000.
Hint: Update depreciation first up to March 1, 2018 to come up with the total
accumulated depreciation.

Cost of Furniture & Fixtures 8,000,000.00

Less: Salvage Value 750,000.00
Depreciable Amount 7,250,000.00
Divided by: Useful Life 10
Annual Depreciation 725,000.00

2015 2016 2017

Depreciation 799,999.00 799,999.00 799,999.00 > current year only
Expense
Accumulated 799,999.00 1,599,998.00 2,399,997.00 > total depreciation
Depreciation since acquisition date

To record 2015 depreciation of the

Furniture & Fixtures:
Dec. 31, 2015 Depreciation Expense 799,999.00
Accumulated Depreciation - Furniture 799,999.00
&
Fixtures

To record 2016 depreciation of the

Furniture & Fixtures:
Dec. 31, 2016 Depreciation Expense 799,999.00
Accumulated Depreciation - Furniture 799,999.00
&
Fixtures

To record 2017 depreciation of the

Furniture & Fixtures:
Dec. 31, 2017 Depreciation Expense 799,999.00
Accumulated Depreciation - Furniture 799,999.00
&
 Fixtures

Cost of Furniture & Fixtures 3,500,000.00

Less: Salvage Value 25,000.00
Depreciable Amount 3,475,000.00
Divided by: Useful Life 5
Annual Depreciation 695,000.00

2015 2016 2017

Depreciation - 347,500.00 695,000.00 > current year only
Expense
Accumulated - 347,500.00 1,042,500.00 > total depreciation
Depreciation since acquisition date

To record 2015 depreciation of the

Furniture & Fixtures:
Dec. 31, 2015 NO ENTRY

To record 2016 depreciation of the

Furniture & Fixtures:
Dec. 31, 2016 Depreciation Expense 347,500.00
Accumulated Depreciation - Furniture 347,500.00
&
Fixtures

To record 2017 depreciation of the

Furniture & Fixtures:
Dec. 31, 2017 Depreciation Expense 695,000.00
Accumulated Depreciation - Furniture 695,000.00
&
Fixtures

Cost of Furniture & Fixtures 950,000.00

Less: Salvage Value 50,000.00
Depreciable Amount 900,000.00
Divided by: Useful Life 8
Annual Depreciation 112,500.00

2015 2016 2017 2018

Depreciation - - 93,750.00 18,750.00 > current year only
Expense
Accumulated - - 93,750.00 112,500.00 > total depreciation since
Depreciation acquisition date

To record 2015 depreciation of the

Equipment:
Dec. 31, 2015 NO ENTRY

To record 2016 depreciation of the

Equipment:
Dec. 31, 2016 NO ENTRY
 To record 2017 depreciation of the
Equipment:
Dec. 31, 2017 Depreciation Expense 93,750.00
Accumulated Depreciation - Equipment 93,750.00

To record 2018 depreciation of the

Equipment:
Dec. 31, 2018 Depreciation Expense 18,750.00
Accumulated Depreciation - Equipment 18,750.00

To record the sale of Equipment

Accumulated Depreciation - Equipment 112,500.00
Cash on Hand 500,000.00
Loss on Sale 337,500.00
Equipment 950,000.00
 Chapter 7 - Bad Debts
EXERCISE 12. Global Advertising Company handles the advertising and promotion of
various clients all on credit term of 180 days. Its adjusted trial balance on December 31,
2017, end of its first year of operation, showed among others: Accounts Receivable,
P1,250,000 and Professional Fees, P4,560,000.
Among its transactions for the year 2018 are the following:
a. Professional services rendered on account, P5,500,000.
b. Total collection of previous and current accounts, P3,500,000.
c. The accountant adopted a policy of providing for doubtful accounts based on 5%
of the outstanding accounts receivable at the end of the year.
Required:
a. Make T-accounts for Accounts Receivable, Allowance for Doubtful Accounts and
Doubtful Accounts Expense. Enter Jan. 1 balance, post 2018 entries, extract
balances.
b. What is the net realizable value of the accounts receivable?
c. How much is doubtful account expense in the income statement at the end of
2018?

REQUIREMENT A:
Accounts Receivable
Beg. Bal. 1,250,000.00 3,500,000.00 Collection
Sales on Account 5,000,000.00
6,750,000.00 3,500,000.00
End Bal. 3,250,000.00

Allowance for Doubtful Accounts

162,500.00 2018 Doubtful Accounts
162,500.00 End Bal.

Doubtful Accounts Expense

2018 Doubtful Accounts 162,500.00
End Bal. 162,500.00
 2018 JOURNAL ENTRIES
To record sales on account:
Accounts Receivable 5,500,000.00
Professional Fees 5,500,000.00

To record collection of previous and current

accounts:
Cash on Hand 3,500,000.00
Accounts Receivable 3,500,000.00

To record 2018 allowance for doubtful accounts:

Doubtful Accounts Expense 162,500.00
Allowance for Doubtful Accounts 162,500.00
(3,250,000 x 5%)

REQUIREMENT B:
Accounts Receivable, End Bal. 3,250,000.00
Less: Allowance for Doubtful Accounts 162, 500.00
Net Realizable Value 3,087,500.00

REQUIREMENT C:
Doubtful Accounts Expense - 2018 162,500.00
Cost of Equipment 950,000.00
Less: Accumulated Depreciation 112,500.00
Book Value 837,500.00

Proceeds from Sale 500,000.00

Less: Book Value 837,500.00
Gain (Loss) on Sale - 337,500.00

TIPS:
 WHEN DO WE CREDIT ACCUMULATED DEPRECIATION?
1. Recording annual depreciation.
2. Updating accumulated depreciation before sale/withdrawal/disposal.

 WHEN DO WE DEBIT ACCUMULATED DEPRECIATION?

1. Sale of a depreciation asset.
2. Withdrawal of a depreciation asset.
3. Disposal of a depreciation asset.
 Chapter 7 - Accrued Expense - 1
EXERCISE 04. Dr. Patty Ocampo, a consultant, employs one college student every
summer to help her in her research work. As researcher, the student works five
weekdays (Monday to Friday) for P450 per day and is paid every Saturday. The last
three days of May will be paid on June 3. The calendar from May 21 to June 3 is
reproduced below. Dr. Ocampo uses the fiscal period ending May 31.
Sun Mon Tue Wed Thu Fri Sat
21 22 23 24 25 26 27
28 29 30 31 1 2 3

Require: Prepare the adjustment for accrued salary on May 31.

27 - May Salaries Expense 2,250.00
Cash in Bank 2,250.00

ADJUSTING ENTRIES
31 - May Salaries Expense 1,350.00
Salaries Payable 1,350.00
(P450 x 3 days)

START OF NEW FISCAL YEAR

If recorded using compound journal entry:
3 - Jun Salaries Expense (P450 x 2 days) 900.00
Salaries Payable 1,350.00
Cash in Bank 2,250.00

If recorded using separate simple journal entry:

3 - Jun Salaries Expense (P450 x 2 days) 900.00
Salaries Payable 900.00

3 - Jun Salaries Payable 2,250.00

Cash in Bank 2,250.00

TIPS:
ACCRUALS = transactions that are INCURRED but NOT YET RECORDED
Accrued Expenses examples:
Salaries Payable
Premiums Payable
Rent Payable
Utilities Payable
Advertising Payable
Interest Payable
 ACCRUED EXPENSE EXPENSE Utilities Expense Debit IS
LIABILITY Utilities Payable Credit SFP

Chapter 7 - Accrued Expense - 2

EXRCISE 05. On October 15, Bert Motor Service Center issued a 90-day, 18% note for
P10,000 for loan from a friend. The service center uses the calendar accounting period
ending December 31.
Required: Entries on date of issues, end of December and on maturity date.

To record issuance of note:

15 - Oct Cash on Hand 10,000.00
Notes Payable 10,000.00

To record interest expense:

31 - Dec Interest Expense 385.00
Interest Payable 385.00
(P10,000 x 18% x 77 / 360)

To record payment of note:

13 - Jan Notes Payable 10,000.00
Interest Payable 385.00
Interest Expense (P10,000 x 18% x 13 / 360) 65.00
Cash in Bank 10,450.00
October 16
November 30
December 31
Total 77
January 13
To record payment of note (assuming date of
issue is Aug. 1,2020):
30 - Oct Notes Payable 10,000
Interest Expense (P10,000 x 18% x 90 / 360) 450.00
Cash in Bank 10,450.00
August 30
September 30
October 30
Total 90
 Chapter 7 - Unearned Income - 1
EXERCISE 06. Shaina Montes started a magazine publication called The Good Life. A
subscriber pays P100 for one issue. Fifty subscribers made a one-year payment on
March 1 and another 100 subscribers on August 1 which Montes credited to Advances
from Subscribers. She sends the magazine to each of these subscribers every month.

Required:
a. Make the entry to record collections received on March 1 and August 1.
b. Assuming no changes in subscribers, compute for the Subscription Revenue that
she should report at the end of December and prepare the journal entry to adjust
the liability to a revenue account.

1 - Mar Cash on Hand (100 x 12 x 50) 60,000.00

Advances from Subscribers 60,000.00 > Liability
Account

1 - Aug Cash on Hand (100 x 12 x 100) 120,000.00

Advances from Subscribers 120,000.00 > Liability
Account

ADJUSTING ENTRIES
31 - Dec Advances from Subscribers 100,000.00
Subscription Income 100,000.00

MAR. 01 SUBSCRIPTION Ending Initial Adjustment

Unearned 2 / 12 10,000.00 60,000.00 -50,000.00 > Liability A.
Earned 10 / 12 50,000.00 - 50,000.00 > Income A.
Total 60,000.00

AUG. 01 SUBSCRIPTION Ending Initial Adjustment

Unearned 7 / 12 70,000.00 120,000.00 -100,000.00 > Liability A.
Earned 5 / 12 50,000.00 - 100,000.00 > Income A.
Total 120,000.00

TOTAL SUBSCRIPTION Ending Initial Adjustment

Unearned 80,000.00 180,000.00 -100,000.00 > Liability A.
Earned 100,000.00 - 100,000.00 > Income A.
Total 180,000.00

ADVANCES FROM SUBSCRIPTION SUBCRIPTION INCOME

AE 100,000.00 60,000.00 1-Mar 100,000.00 AE
 120,000.00 1-Aug 100,000.00 End. Bal

100,000.00 180,000.00
80,000.00 End. Bal

Chapter 7 - Unearned Income - 2

EXERCISE 07. Master Architect designs houses for various clients. Its unadjusted trial
balance as at December 31, 2016 showed, among others, Unearned Professional Fees
Income of P350,000 representing two accounts collected in advance. November 10
Monson account, P200,000 and December 15 Samson account, P150,000. It takes 50
days for a design to be finished and delivered.
Required:
a. Prepare the entry to adjust the unearned revenue and recognize Professional
Fees Income.
b. Make postings to the general ledger accounts below:
c. Extract the balances and show the correct amounts to be reported in the income
statement of financial position.
UNEARNED PROFESSIONAL FEES 404
Date Explanation Ref Debit Credit Balance
2018
Nov. 10 GJ 11 200,000.00 200,000.00
Dec. 15 GJ 12 150,000.00 350,000.00
Dec. 31 AE ?
PROFESSIONAL FEES 702
Date Explanation Ref Debit Credit Balance
2018 Total services rendered GJ 12 1,000,000.00
Dec. 31 AE 2 ? ?
ANSWER:
10 - Nov Cash on Hand 200,000.00
Unearned Professional Fees 200,000.00 > Liability A.

15 - Dec Cash on Hand 150,000.00

Unearned Professional Fees 150,000.00 > Liability A.

ADJUSTING ENTRIES
31 - Dec Unearned Professional Fees 245,000.00
Cash on Hand 245,000.00

NOVEMBER 01 Ending Initial Adjustment

Unearned 0 / 50 - 200,000.00 -200,000.00 > Liability A.
Earned 50 / 50 200,000.00 - 200,000.00 > Income A.
Total 200,000.00

DECEMBER 15 Ending Initial Adjustment

Unearned 35 / 50 105,000.00 150,000.00 -45,000.00 > Liability A.
Earned 15 / 50 45,000.00 - 45,000.00 > Income A.
Total 150,000.00

TOTAL Ending Initial Adjustment

Unearned 105,000.00 350,000.00 -245,000.00 > Liability A.
Earned 245,000.00 - 245,000.00 > Income A.
Total 350,000.00

UNEARNED PROFESSIONAL FEES PROFESSIONAL FEES

AE 245,000.00 200,000.00 10-Nov 245,000.00 AE
150,000.00 15-Dec 245,000.00 End Bal.
245,000.00 350,000.00
105,000.00 End Bal.

TIPS:
 DATES are very important
 Steps in Adjusting Entry
STEP 1: Identify the INITIAL ENTRY
STEP 2: Identify the METHOD used
STEP 3: Identify the EARNED & UNEARNED portion
STEP 3A: Plot the initial amount
STEP 3B: Copy the initial amount to the total amount
STEP 3C: Identify the denominator (total)
STEP 3D: Identify the numerators: earned & unearned portion
STEP 3E: Find the ending balances by allocating the total using
their fraction
STEP 3F: Compute the adjustment
STEP 4: Create the adjusting entry based on your analysis

UNEARNED INCOME LIABILITY METHOD

> LIABILITY LIABILITY Unearned Rent Income Debit SFP
INCOME Rent Income Credit IS

INCOME METHOD
INCOME Rent Income Debit IS
LIABILITY Unearned Rent Income Credit SFP
 Chapter 7 - Unearned Income - 3
PROBLEM 03. The unadjusted trial balance showed on December 31, 2018
Subscription Revenue of P390,000. A magazine subscription costs P100 monthly and is
payable in advance either quarterly or semi-annually. Deliveries are made on or before
the 15th of the month. A review of the subscription contracts revealed the following:
Subscription Date No. of Quarterly No. of Semi-Annual
Subscriptions Subscriptions
September 1 100 100
October 1 200 100
November 1 300 150
Required:
a. Give the adjusting entries on December 31, 2018
b. Set up T-accounts for Subscription Income (start with the balance of P390,000)
and Unearned Subscription Income (start with zero balance). Post the adjusting
entry and determine the adjusted balances that should be presented in the
financial statements
Initial Entries
1-Sep Cash on Hand 90,000.00
Subscription Income 90,000.00 > Income A.
(P100 x 3 mos. X 100 subscription)

1-Oct Cash on Hand 120,000.00

Subscription Income 120,000.00 > Income A.
(P100 x 3 mos. X 100 subscription) +
(P100 x 6 mos. X 100 subscription)

1-Nov Cash on Hand 180,000.00

Subscription Income 180,000.00 > Income A.
(P100 x 3 mos. X 300 subscription) +
(P100 x 6 mos. X 150 subscription)

ADJUSTING ENTRIES
31-Dec Subscription Income 140,000.00
Unearned Subscription Income 140,000.00
SEPTEMBER 01 Ending Initial Adjustment
Unearned 0/3 + 2/6 20,000.00 - 20,000.00 > Liability A.
Earned 3/3 + 4/6 70,000.00 90,000.00 -20,000.00 > Income A.
Total 90,000.00

OCTOBER 01 Ending Initial Adjustment

Unearned 0/3 + 3/6 30,000.00 30,000.00 > Liability A.
Earned 3/3 + 3/6 90,000.00 120,000.00 -30,000.00 > Income A.
Total 120,000.00

NOVEMBER 01 Ending Initial Adjustment

Unearned 1/3 + 4/6 90,000.00 90,000.00 > Liability A.
Earned 2/3 + 2/6 90,000.00 180,000.00 -90,000.00 > Income A.
Total 180,000.00

TOTAL Ending Initial Adjustment

Unearned 140,000.00 140,000.00 > Liability A.
Earned 250,000.00 390,000.00 -140,000.00 > Income A.
Total 390,000.00

UNEARNED SUBSCRIPTION INCOME SUBSCRIPTION INCOME

140,000.00 AE AE 140,000.00 90,000.00 1-Sep

140,000.00 End. Bal 120,000.00 1-Oct

1-Nov
180,000.00
140,000.00 390,000.00
End Bal.
250,000.00
 Chapter 7 - Prepaid Expense - 1
EXERCISE 08. Modeling Agency gave to De Leon Realty and advance payment for rent
which was good for six months. Ledger postings appear below.
Rent Expense Prepaid Rent
Debit Credit Debit Credit
Oct. 31 – 72,000
Required:
a. Make the entry to adjust the ledger accounts affected as at December 31, end of
its accounting period. Post your entry.
b. How much should be reported in the income statement and in the statement of
financial position?

INITIAL ENTRIES
31-Oct Prepaid Rent 72,000.00 > Asset Method
Cash in Bank 72,000.00

ADJUSTING ENTRIES
31-Dec Rent Expense 24,000.00
Prepaid Rent 24,000.00
Fractio Ending Initial Adjustment
n
Unexpired 4/6 48,000.0 72,000.00 -24,000.00 CR Prepaid
(Asset) 0 Rent
Expired 2/6 24,000.0 24,000.00 DR Rent
(Expense) 0 Expense
Total 72,000.0
0

PREPAID RENT RENT EXPENSE

31-Oct 72,000.00 24,000.00 AE1 AE1 24,000.0
0
72,000.00 24,000.00 End Bal. 24,000.0
0
End Bal. 48,000.00

INCOME STATEMENT: 24,000.00 Rent Expense

BALANCE SHEET: 48,000.00 Prepaid Rent
 Chapter 7 - Prepaid Expense - 2
EXERCISE 09. The unadjusted trial balance of The SPA showed, among others,
Medical Supplies P72,000.00 and Medical Supplies Expense P0. On December 31, end
of the accounting period, P15,500 are still on hand.
Medical Supplies Medical Supplies Expense
Debit Credit Debit Credit
Jan. 1 – 11,500
Jun. 4 – 35,000
Dec. 1 – 25,500

Required:
a. Make the entry on December 31 to adjust for the medical supplies on hand. Post
the entry.
b. Determine the adjusted balances to be presented in the financial statement.

INITIAL ENTRIES
1-Jan Medical Supplies 11,500.00 > Asset Method
Cash in bank 11,500.00

4-Jun Medical Supplies 35,000.00

Cash in Bank 35,000.00

1-Dec Medical Supplies 25,500.00

Cash in Bank 25,000.00

ADJUSTING ENTRIES
31-Dec Medical Supplies Expense 56,500.00
Medical Supplies 56,500.00

Fractio Ending Initial Adjustment

n
Unexpired 15,000.0 72,000.00 -56,500.00 CR Medical
(Asset) 0 Supplies
Expired 56,500.0 56,500.00 DR Medical
(Expense) 0 Supplies Expense
Total 72,000.0
 0
TIPS:
 Steps in Adjusting Entry
STEP 1: Identify the INITIAL ENTRY
STEP 2: Identify the METHOD used
STEP 3: Identify the EARNED & UNEARNED portion
STEP 3A: Plot the initial amount
STEP 3B: Copy the initial amount to the total amount
STEP 3C: Identify the denominator (total)
STEP 3D: Identify the numerators: EARNED/EXPIRED then
UNEARNED/UNEXPIRED PORTION
STEP 3E: Find the ending balances by allocating the total using
their fraction
STEP 3F: Compute the adjustment
STEP 4: Create the adjusting entry based on your analysis.
Chapter 7 - Prepaid Expense - 3
PROBLEM 05. Mega Theater and Mega Bookstore entered into separate transactions
with Fortune Insurance Corporation and insured their buildings by paying an annual
premium of P2,400 on June 1, 2018. Mega Theater used the expense method while
Mega Bookstore used the asset method.
Required:
a. Give the entry to be recorded by each business on June 1, 2018.
b. Give the adjusting entry to be recorded by each bookkeeper on December 31,
2018, which is the end of the accounting period.
c. Post to t-accounts, determine the balances to be presented in the financial
statements.

MEGA THEATER (EXPENSE METHOD)

INITIAL ENTRIES
1-Jun Insurance Expense 2,400.00 > Expense Method
Cash in Bank 2,400.00

ADJUSTING ENTRIES
31-Dec Prepaid Insurance 1,000.00
Insurance Expense 1,000.00
Fractio Ending Initial Adjustment
n
Unexpired 5/12 1,000.00 - 1,000.00 DR Prepaid
(Asset) Insurance
Expired 7/12 1,400.00 2,400.00 -1,000.00 CR Insurance
(Expense) Expense
Total 2,400.00

MEGA BOOKSTORE (ASSET METHOD)

INITIAL ENTRIES
1-Jun Prepaid Insurance 2,400.00 > Asset Method
 Cash in Bank 2,400.00

ADJUSTING ENTRIES
31-Dec Insurance Expense 1,000.00
Prepaid Insurance 1,000.00
Fractio Ending Initial Adjustment
n
Unexpired 5/12 1,000.00 - -1,400.00 CR Prepaid
(Asset) Insurance
Expired 7/12 1,400.00 2,400.00 1,400.00 DR Insurance
(Expense) Expense
Total 2,400.00

MEGA THEATER T-ACCOUNTS

PREPAID INSURANCE INSURANCE EXPENSE
AE1 1,000.00 6/1/2018 2,400.0 1,000.00 AE1
0
End. Bal. 1,000.00 2,400.0 1,000.00
0
End Bal. 1,400.0
0

MEGA BOOKSTORE T-ACCOUNTS

PREPAID INSURANCE INSURANCE EXPENSE
6/1/2018 2,400.00 1,000.00 AE1 AE1 1,400.0
0
2,400.00 1,000.00 End. Bal. 1,400.0
0
End Bal. 1,400.00

TIPS:

 HOW TO IDENTIFY METHOD USED?

1. Stated by the problem
2. Based on the existing accounts (T-accounts)
3. Check the method used of the unearned income or prepaid expense
Example:
UNEARNED INCOME = ? THEREFORE: LIABILITY METHOD
PREPAID EXPENSE = ASSET METHOD
PREPAID EXPENSE = ? THEREFORE: EXPENSE METHOD
UNEARNED INCOME = INCOME METHOD
 ALLOWED PAIRING:
 ASSET METHOD (Prepaid Expense) & LIABILITY METHOD (Unearned
Income)
 EXPENSE METHOD (Prepaid Expense) & INCOME METHOD (Unearned
Income)