Since 1977

FAR OCAMPO/CABARLES/SOLIMAN/OCAMPO
FAR.2855-Accounting Process MAY 2020

DISCUSSION PROBLEMS
LECTURE NOTES: 6. A trial balance may prove that debits and credits are
equal, but
STEPS IN THE ACCOUNTING PROCESS (CYCLE) a. An amount could be entered in the wrong account.
b. A transaction could have been entered twice.
1. Analyze business documents
c. A transaction could have been omitted.
2. Journalize transactions
d. All of these.
3. Post to ledger accounts
4. Prepare a trial balance
7. The trial balance of Mistake Company shown below
5. Prepare adjusting entries
does not balance. Your review of the ledger reveals
6. Prepare financial statements (using a work sheet or
the following: (a) Each account had a normal balance.
from the adjusted individual accounts)
(b) The debit footings in Prepaid Insurance, Accounts
7. Close the nominal accounts
Payable, and Property Tax Expense were each
8. Prepare a post-closing trial balance (optional)
understated by P100. (c) A transposition error was
9. Prepare reversing entries (optional)
made in Accounts Receivable; the correct balances for
Accounts Receivable and Service Revenue are P2,750
The accounting process can be described as a set of
and P6,690, respectively. (d) A debit posting to
procedures used in identifying, recording, classifying, and
Advertising Expense of P300 was omitted. (e) A
interpreting information related to the transactions and
P1,500 cash drawing by the owner was debited to
other events of a business enterprise.
Mistake Capital, and credited to Cash.
Mistake Company
1. The double-entry accounting system means Trial Balance
a. Each transaction is recorded with two journal December 31
entries. Debit Credit
b. Each item is recorded in a journal entry, then in a Cash P 4,800
general ledger account. Accounts Receivable 2,570
c. The dual effect of each transaction is recorded with Prepaid Insurance 700
a debit and a credit. Equipment P 8,000
d. All of the above. Accounts Payable 4,500
Property Tax Payable 560
2. The debit and credit analysis of a transaction normally Mistake, Capital 11,200
takes place when the Service Revenue 6,960
a. Entry is posted to a subsidiary ledger. Salaries Expense 4,200
b. Entry is recorded in a journal. Advertising Expense 1,100
c. Trial balance is prepared. Property Tax Expense ______ 800
d. Financial statements are prepared. P20,890 P24,500

3. Comparison of the balance sheet of OUTREACH at the The corrected trial balance of the company should
end of 2020 with its balance sheet at the end of 2019 show total debits of
showed a decrease in total assets of P69,000 and a. P24,350 c. P22,850
owners’ equity by P15,000. The change in liabilities b. P23,070 d. P21,570
during the year was
a. Increase of P84,000 c. Decrease of P54,000
b. Decrease of P84,000 d. Increase of P54,000 8. Adjusting entries
a. Reduce the balances of temporary accounts to zero
4. Tung Company had total assets of P20,000,000 and so that they may be used to accumulate the
shareholders’ equity of P15,000,000 on January 1. revenues, expenses and dividends of the next
During the year, assets increased by P3,000,000 and period.
liabilities decreased by P1,000,000. Tung Company b. Are made at the beginning of the next accounting
should report what amount of shareholders’ equity on period.
December 31? c. May include a debit or a credit to Cash.
a. P18,000,000 c. P19,000,000 d. Normally involve real and nominal accounts.
b. P17,000,000 d. P16,000,000

5. Which of the following is not a principal purpose of an 9. A company must make adjusting entries
unadjusted trial balance? a. To ensure that the revenue recognition and
a. It proves that debits and credits of equal amounts expense recognition principles are followed.
are in the ledger. b. Each time it prepares an income statement and a
b. It is the basis for any adjustments to the account statement of financial position.
balances. c. To account for accruals or deferrals.
c. It supplies a listing of open accounts and their d. All of the choices are correct regarding adjusting
balances. entries.
d. It proves that debits and credits were properly
entered in the ledger accounts.

This study source was downloaded by 100000807001956 from CourseHero.com on 12-26-2021 06:35:40 GMT -06:00
Page 1 of 3 www.prtc.com.ph FAR.2855
https://www.coursehero.com/file/65831605/FAR2855-Accounting-process-1pdf/
EXCEL PROFESSIONAL SERVICES, INC.

LECTURE NOTES:

Summary of the typical adjusting entries and the effect on profit, assets, liabilities and equity of the failure to prepare the
necessary adjusting entry:
Effect on
Nature of adjustment Adjusting journal entry Profit Assets Liabilities Equity
1. Accrued expense Expense xx Over NE Under Over
Payable xx
2. Accrued income Receivable xx Under Under NE Under
Income xx
3. Prepaid expense Prepaid expense xx Under Under NE Under
(expense method) Expense xx
4. Prepaid expense Expense xx Over Over NE Over
(asset method) Prepaid expense xx
5. Unearned income Income xx Over NE Under Over
(income method) Unearned income xx
6. Unearned income Unearned income xx Under NE Over Under
(liability method) Income xx

7. Depreciation Depreciation expense xx Over Over NE Over

Accumulated Dep. xx
8. Doubtful accounts Doubtful accounts exp. xx Over Over NE Over
Allow. For D/A xx

Use the following information for the next two questions. 12. The accountant of Review Company made the following
adjusting entry on December 31.
For each situation, reconstruct the adjusting entry that
was made to arrive at the ending balance. Assume that Prepaid Rent P1,800
the entity prepares statements and adjusting entries only Rent Expense P1,800
once each year. If annual rent is paid in advance every October 1, the
original transaction entry made was
10. Prepaid Insurance: a. Debit Prepaid Rent and credit Cash, P1,800.
Balance beginning of year P5,600 b. Debit Rent Expense and credit Cash, P1,800.
Balance end of year 6,400 c. Debit Rent Expense and credit Cash, P2,400.
d. Debit Rent Expense and credit Cash, P7,200.
During the year, an additional business insurance
policy was purchased. A 2-year premium of P2,500
was paid and charged to Prepaid Insurance.
13. The accountant of Mutya Company made the following
a. Debit Insurance Expense and credit Prepaid adjusting entry on December 31.
Insurance, P1,700.
Rent Income P 900
b. Debit Prepaid Insurance and credit Insurance
Unearned Rent Income P 900
Expense, P1,700.
c. Debit Prepaid Insurance and credit Insurance If annual rent is received in advance every March 1,
Expense, P800. the original transaction entry made was
d. Debit Prepaid Insurance and credit Insurance a. Debit Cash and credit Unearned Rent Income,
Expense, P6,400. P900.
b. Debit Cash and credit Rent Income, P1,080.
11. Unearned Rent: c. Debit Cash and credit Rent Income, P5,400.
Balance beginning of year P11,000 d. Debit Rent Income and credit Cash, P5,400.
Balance end of year 15,000
Warehouse quarterly rent received in advance is 14. Caddis Co. had these unadjusted account balances on
P18,000. During the year, equipment was rented to December 31:
another company at an annual rent of P9,000. The
Inventory, January 1 P188,250
quarterly rent payments were credited to Rent
Purchases 142,700
Income; the annual equipment rental was credited to
Freight-In 12,880
Unearned Rent.
Purchase Discounts 2,140
a. Debit Rent Income and credit Unearned Rent, Purchase Returns 26,710
P4,000
Assuming that the ending inventory is P97,900, the
b. Debit Unearned Rent and credit Rent Income,
entry to adjust the inventory accounts would include
P4,000
a. A debit to Inventory of P90,350.
c. Debit Rent Income and credit Unearned Rent,
b. A debit to Cost of Goods Sold of P217,080.
P5,000
c. A credit to Purchase Discounts of P2,140.
d. Debit Unearned Rent and credit Rent Income,
d. A credit to Purchases Returns of P26,710.
P5,000

This study source was downloaded by 100000807001956 from CourseHero.com on 12-26-2021 06:35:40 GMT -06:00
Page 2 of 3 www.prtc.com.ph FAR.2855
https://www.coursehero.com/file/65831605/FAR2855-Accounting-process-1pdf/
 EXCEL PROFESSIONAL SERVICES, INC.

15. The worksheet for an entity consisted of five pairs of 18. A company receives interest on a P30,000, 8%, 5-year
debit and credit columns. The peso amount of which of note receivable each April 1. At December 31, 2020,
the following will appear in both the credit column of the proper adjusting entry was made to accrue interest
the income statement section and the debit column of receivable. Assuming that the company does not use
the balance sheet section? reversing entries, what entry should be made on April
a. Ending inventory. c. Both a and b. 1, 2021 when the annual interest payment is received?
b. Net loss for the period. d. Neither a nor b. a. Cash P 600
Interest Income P 600
16. Reversing entries b. Cash P1,800
a. Are necessary to achieve a proper matching of Interest Receivable P1,800
revenue and expense. c. Cash P2,400
b. Impact the income statement only. Interest Receivable P1,800
c. Are desirable to exercise consistency and establish Interest Income 600
standardized procedures. d. Cash P2,400
d. All of the above. Interest Income P2,400

17. Adjusting entries that may be reversed include

a. All accrued revenues.
b. All accrued expenses.
c. Those that debit an asset or credit a liability.
d. All of these. - now do the DIY drill -

DO-IT-YOURSELF (DIY) DRILL

1. The beginning-of-the-year total equity for a firm was c. Debit insurance expense for P67,500 and credit
P40,000. During the year, the firm issued ordinary prepaid insurance for P67,500.
shares for a total proceeds of P20,000, earned P20,000 d. Debit insurance expense for P23,100 and credit
net income, and paid P5,000 in cash dividends. If prepaid insurance for P23,100.
ending total liabilities are P100,000, what is ending
total assets? 5. Daguioman Company received P9,600 on April 1, 2020
a. P165,000 c. P175,000 for one year's rent in advance and recorded the
b. P 45,000 d. P100,000 transaction with a credit to a nominal account. The
December 31, 2020 adjusting entry is
2. Moon Company purchased equipment on November 1, a. debit Rent Income and credit Unearned Rent,
2020, by giving its supplier a 12-month, 9 percent P2,400.
note with a face value of P48,000. The December 31, b. debit Rent Income and credit Unearned Rent,
2020, adjusting entry is P7,200.
a. debit Interest Expense and credit Cash, P720. c. debit Unearned Rent and credit Rent Income,
b. debit Interest Expense and credit Interest P2,400.
Payable, P720. d. debit Unearned Rent and credit Rent Income,
c. debit Interest Expense and credit Interest P7,200.
Payable, P1,080.
d. debit Interest Expense and credit Interest 6. Dunlap Company sublet a portion of its warehouse for
Payable, P4,320. 5-years at an annual rental of P15,000, beginning on
March 1. The tenant paid 1 year’s rent in advance,
3. Rice Corporation loaned P60,000 to another which Dunlap recorded as a credit to unearned rental
corporation on December 1, 2020 and received a 3- income. Dunlap reports on a calendar-year basis. The
month, 8% interest-bearing note with a face value of adjustment on December 31, of the first year should
P60,000. What adjusting entry should Rice make on be
December 31, 2020? a. No entry.
a. Debit Interest Receivable and credit Interest b. Unearned rental income P2,500
Income, P1,200. Rental income P2,500
b. Debit Cash and credit Interest Income, P400. c. Rental income P2,500
c. Debit Interest Receivable and credit Interest Unearned rental income P2,500
Income, P400. d. Unearned rental income P12,500
d. Debit Cash and credit Interest Receivable, P1,200. Rental income P12,500

4. Gehrig Corporation renewed an insurance policy for 3 7. A 3-year insurance policy was purchased on October 1
years beginning July 1, 2020 and recorded the P81,000 for P6,000, and prepaid insurance was debited.
premium in the prepaid insurance account. The Assuming a December 31, year-end, what is the
P81,000 premium represents an increase of P23,400 reversing entry at the beginning of the next period?
from the P57,600 premium charged 3 years ago. a. None is required.
Assuming Gehrig’s records its insurance adjustments b. Prepaid insurance P5,500
only at the end of the calendar year, the adjusting Prepaid insurance P5,500
entry required to reflect the proper balances in the c. Prepaid insurance P500
insurance accounts at December 31, 2020, Gehrig’s Insurance expense P500
year-end is to d. Insurance expense P500
a. Debit insurance expense for P13,500 and credit Prepaid insurance P500
prepaid insurance for P13,500.
b. Debit prepaid insurance for P13,500 and credit
insurance expense for P13,500 J - end of FAR.2855 - J

This study source was downloaded by 100000807001956 from CourseHero.com on 12-26-2021 06:35:40 GMT -06:00
Page 3 of 3 www.prtc.com.ph FAR.2855
https://www.coursehero.com/file/65831605/FAR2855-Accounting-process-1pdf/

Powered by TCPDF (www.tcpdf.org)