Problem 4-3: Preparing Adjusting Entries at Year-end

Listed below are additional information pertaining to activities of the BSMA1 Company
that require adjustments for the May 31, 2020 year-end financial statements:

a. The company entered into a lease agreement with Evangelista Corporation on

November 1, 2019 for rental of office space for the next 24 months for
P156,000. A second lease was signed on Feb. 1, 2020 for storage space for 6
months, with P56,400 paid in advance.

b. On June 1, 2019, the Office Supplies account had a debit balance of P42,600.
Office Supplies in the amount of P165,200 were required during the year. A
physical count of office supplies on May 31, 2020 totaled P31,700.

c. The company sells magazines by subscription for P15 per copy. During the
year, 47,200 two-year subscriptions were sold. As at June 1, 2019, the
Unearned Magazine Revenues account had a balance of P315,000. At year-
end, it is determined that the liability to provide subscriber’s future magazines
amounted to P613,000.

d. On December 1, 2019, BSMA1 Company acquired a new computer for

P131,400. It is anticipated that the computer will be used for 4 years with no
salvage value.

e. The company pays its employees every 8th and 22nd day of the month. There
are five workdays within a workweek. The last payday was on May 22, 2020
which falls on Tuesday.
Employee Category Number Daily Rate per Employees
Executives 3 1,000
Managers 6 750
Staff 36 400

f. The company borrowed P1,000,000 from the Dayrit Development Bank on

March 1, 2020 and issued a 24% one-year note payable.

Required:

1. Prepare the adjusting entries.

2. Refer to item (e) and record the entry to pay the salaries due on June 8, 2020.