ACCOUNTING FINALS EXAM REVIEWER

Adjusting Entries

1. The company rendered maintenance services to its client for a monthly fee of P2,200. Last quarterly billing was not
yet paid.
ACCOUNTS RECEIVABLE 2,200
SERVICE INCOME 2,200

2. The firm borrowed P65,000 from Metro Bank and signed a 45-day 12% note dated November 29, 2019.
INTEREST EXPENSE 693.33
INTEREST PAYABLE 693.33
65,000 X 12% X 32/360 = 693.33

3. The company pays its employees’ salary on a weekly basis. Salaries from Monday to Friday are paid on a Friday
afternoon. Records showed a weekly salary of P40,800. The end of the accounting period fell on a Wednesday.
SALARIES EXPENSE 24,480
SALARIES PAYABLE 24,480
Unpaid salary: Monday-Wednesday 40,800 x 3/5 = 24,480

4. On December 5, 2019, the business received a 30 day-6% note from a customer in settlement of its account
amounting to P15,500.
INTEREST RECEIVABLE 67.17
INTEREST INCOME 67.17
15,500 x 6% x 26/360 = 67.17
5. The January 1, 2019 balance of office supplies was P2,200. As per check vouchers #101 and 135, acquisitions of
office supplies for the period amounted to P8,560. Per physical count, P1,320 worth of supplies were still on hand.
OFFICE SUPPLIES EXPENSE 9,440
OFFICE SUPPLIES 9,440
Office supplies Jan 1 P2,200
Add office supplies purchased during the year 8,560
Total P10,760
Less office supplies on hand 1,320
Office supplies used (expense) P9,440
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6. Services totaling P15,200 have been performed for which the customer has not yet been billed.
ACCOUNTS RECEIVABLE 15,200
SERVICE INCOME 15,200

7. The land owned by the company had been rented out as a parking space with monthly rent of P20,000. Rent for the
fourth quarter have not yet been collected.
ACCOUNTS RECEIVABLE 60000
RENT INCOME 60000

20,000 x 3mos = P60,000

8. A 60-day 16% note for P50,000 of a customer is on hand. The note is payable at maturity on January 15.
INTEREST RECEIVABLE 1,000
INTEREST INCOME 1,000

50,000 x 16% x 45/360 = P1,000. Jan 15 is the due date, accrued interest was for 45 days

9. The company has P100,000 of 16% long-term notes payable, and pay interest on the notes semi-annually on April 1
and October 1.
INTEREST EXPENSE 4,000
 INTEREST PAYABLE 4,000

100,000 x 16% x 3/12 = P4,000 Oct-Dec (3mos)

10. As of December 31, 2019, the firm has P125,000 outstanding customer accounts. Ninety percent of these accounts
are estimated to be collectible. The Allowance for Doubtful Accounts has a negative balance of P2,500 before
adjustment.
DOUBTFUL ACCOUNT EXPENSE 15,000
ALLOWANCE FOR DOUBTFUL ACCT 15,000
Required allowance (125,000 x 10%) P12,500
Add negative (debit) balance in alllowance 2,500
Adjustments P15,000

Note: If the allowance has a credit balance, the adjustments should be P10,000.
(P12,500-P2,500)

11. On July 1, 2019, the company acquired a delivery van for cash costing P850,000. It is estimated that the van will
have a useful life of 10 years and salvage value of P50,000.
DEPRECIATION EXPENSE 40,000
ACCUMULATED DERPECIATION 40,000

Cost P850,000
Less: Salvage value 50,000
Depreciable cost P800,000
Divided by useful life 10 years
Annual depreciation P80,000
July – December x6/12
Depreciation as of DEC 31 P40,000
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SFP presentation (notes to fs)
Cost P850,000
Less Accumulated depreciation 40,000
Carrying value P810,000
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12. As per physical count on December 31, merchandise inventory on hand amount to P140,000.

Merchandise Inventory 140,000

Income Summary 140,000

Problem Solving

1. Merchandise subject to terms 1/10, n/30, FOB shipping point is sold on account to a customer for P75,000. The seller
paid transportation costs of P1,200 and issued a credit memorandum for P5,000 prior to payment. Partial payment of
P20,000 is made within the period.
a. What is the amount of cash discount allowable?
INVOICE PRICE P75,000
Less : Return 5,000
NET P70,000
Cash discount rate 1%
CASH DISCOUNT ALLOWABLE P700.00
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2. The following data were taken from the ledger: Sales, P750,000; sales returns and allowances, P12,000; purchases,
P374,000; purchase returns and allowances, P2,500; purchase discounts, P5,000 and transportation in, P1,300.
Merchandise inventory at the beginning of the year was P210,000, and at the end of the year was P250,000.
 a. What was the cost of merchandise purchased?
PURCHASES P374,000
LESS: PUCHASE RETURNS AND ALLOWANCES P2,500
PURCHASE DISCOUNT 5.000 7,500
NET PURCHASES P366,500
ADD: FREIGHT IN 1,300
COST OF MERCHANDISE PURCHASED P 367,800
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3. Details of a purchase invoice and related credit memorandum are summarized below:
Invoice:
Cost of merchandise listed on purchase invoice.....................P65,000
Prepaid transportation charge added to invoice 3,050
Terms, 2/10, n/eom
Credit memo: Cost of merchandise returned 4,200

Assume that the credit memorandum was received prior to payment and that the invoice is paid within the discount
period. What is the amount paid by the buyer ?
INVOICE PRICE P65,000
Add Freight 3,050
Total P68,050
Less Cost of merchandise returned P 4,200
Cash Discount (65,000-4,200) x 2% 1,216 5,416
AMOUNT PAID BY BUYER P62,634
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Note: the freight was paid in advance by the seller, that’s why it was charge to the buyer. The basis of the discount is
always the invoice price or the account balance after downpayment minus any returns.

FOB Shipping point means the buyer is responsible for the payment of freight that’s why we debit FREIGHT IN
FOB Destination means the seller is responsible for the payment of freight that’s why we debit FREIGHT OUT
FOB means FREE ON BOARD

5. The list of insurance policies of the company revealed the following:

Policy A taken on May 1, 2018 for 5 years, P45,000. Note (5 yrs = 60 mos)
Policy B taken on January 1,2019 for 3 years, P25,600 (3 yrs = 36mos)
Policy C taken on May 31, 2019 for 1 year, P12,500.

a. What is the amount of prepaid insurance and insurance expense on December 31, 2019, the end of the accounting
period?
INSURANCE EXPENSE PREPAID INSURANCE
POLICY A (45,000X12/60) P 9,000 POLICY A (45,000 x40/60) P 30,000
POLICY B (25,600 X 12/36 ) 8,533.33 POLICY B (25,600 x24/36) 17,066.67
POLICY C (12,500 X 7/12) 7,291.67 POLICY C(12,500 x5/12) 5,208.33
TOTAL INSURANCE EXP. P 24,825 TOTAL P 52,275
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Note: Insurance expense for Policy A is 1 year since it started in 2018. Adjustments are prepared at the end of each year,
Prepaid insurance for Policy A is 40/60 since May 1, 2018 (8mos) and 2019 (12 mos) therefore 60 mos-20mos,
remaining prepaid is 40 mos.
6. The net income reported for the year ending December 31,2019 amount to P12,500. However close examination of the
records disclosed that:

1. the interest on a 120-day, 12% note for P15,000 issued on Dec. 17 has not yet been recorded.
2. the interest for the 90-day 15% note for P35,700 received from a customer on Dec. 3 has not yet
been recognized.
Determine the amount of net income to be reported on December 31, 2019
NET INCOME P12,500
ADD/LESS ADJUSTMENTS:
Interest Expense (15,000x12%x14/360) ( 70)
Interest Income (35,700x15%x28/360) 416.50
ADJUSTED NET INCOME P12,846.50
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7. Nehemiah Enterprises observes a calendar year period. The company collects interest in advance on notes using the
nominal account method. As of December 31, 2019, it has the following notes on hand:
Date of Note Principal Term Interest Rate
October 16, 2019 P 15,800 120 days 21%
November 12, 2019 27,500 60 days 25%
How much Unearned Interest is to be shown in the balance sheet at year-end?

October 16-12/31/19 =76days Earned Unearned (120days-76=44days) (15,800x21%x44/360) P405.53

Nov 12-12/31/19 =49 days Earned (60days-49=11days) (27,500x25%x11/360) 210.07
UNEARNED INTEREST
P615.60
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8. Jeremiah Corporation’s notes payable account balances at December 31,2018, include a 10% note payable in the
amount of P720,000. The note is dated October 1, 2018 and is payable in three equal annual payments of P240,000 plus
interest. The first interest and principal payment was made on October 1, 2019. In Jeremiah’s December 31,2018
statement of financial position, what amount should be reported as accrued interest expense for this note?

ACCRUED INTEREST EXPENSE

Principal P720,000
Interest rate 10%
Interest for 1 year P72,000
Interest for 3 mos (Oct-Dec2018) X 3/12
ACCRUED INTEREST P18,000
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