Problem 4-2: Preparing Adjusting Entries at Year-end

On June 30, 2020, the end of the fiscal year, the following information is available to
Gaudie G. Company’s accountants for making adjusting entries:

a. Among the liabilities of the company is a P2,400,000 mortgage payable. On

June 30, the accrued interest on this mortgage amounted to P120,000.

b. On Friday, July 2, the company which is on a five-day workweek and pays

employees weekly, paid its regular employees P192,000.

c. On June 30, the company completed negotiations and signed a contract to

provide services to a new client at an annual rate of P36,000.

d. The Supplies account showed a beginning balance of P16,150 and purchases

during the year of P37,660. The year-end inventory revealed supplies on hand
of P11,860.

e. The Prepaid Insurance account showed the following entries on June 30:
Beginning Balance P15,300
January 1 29,000
May 1 33,660

The beginning balance represents the unexpired portion of a one-year policy

purchased in April of the previous year. The January 1 entry represented a new
one-year policy, and the May 1 entry is the additional coverage of a three-year
policy.

f. The following table contains the cost and annual depreciation for buildings and
equipment, all of which were purchased before the current year:

Account Cost Annual Depreciation

Buildings P1,850,000 P73,000
Equipment 2,180,000 218,000

g. On June 1, the company completed negotiations with another client and

accepted an advanced payment of P210,000 for services to be performed in
the next year. The payment was credited to Unearned Service Revenues.

h. The company calculated that as at June 30 it had earned P35,000 on a P75,000

contract that will be completed and billed in August.

Required: Prepare the adjusting entries.