ADJUSTING ENTRIES

LECTURE/ EXERCISES

I. Adjusting Entries. The data given below was taken

from the books of Trojan Trading from which you will 9. The notes payable is an interest bearing note of 8%,
base your trial balance and adjustments for the period 120-day. No interest had been taken up on this note
ending December 31. which was dated, October 15.
10. The purchase on account amounting to P35,000
Cash 360,000 was not recorded in the book.
11. Sales include P15,000 cash received in advance
Accounts receivable 125,000
from Turk Company. This amount should have been
Inventory, January 1 145,000
recorded as commission income. Of this amount
Prepaid insurance 36,000
only P5,000 had been earned.
Office supplies 12,500 12. The amount debited to advertising expenses
Land 70,000 represent P5,000 expense and the balance is still
Buildings 500,000 applicable to the next accounting period.
Accumulated depreciation – building 12,500 13. It was discovered that P5,000 of salaries were still
Office equipment 50,000 unpaid pending completion of the pre- employment
Accumulated depreciation – Office equip 2,500 requirements of one of the staff.
Store equipment 150,000 14. Utilities expense represents bills from electricity and
Accumulated depreciation - store equip 5,000 water. The business has not paid P5,000 for electric
Notes payable 25,000 bill due the following month.
Accounts payable 125,000 15. The business failed to record P3,500 representation
Trojan drawing 15,000 expense.
Trojan capital Compute
Sales 600,000 II. Adjusting Entries. The following account balances of
Sales returns and allowances 4,000 Sensory Liquid Trading from which you will base your
Sales discounts 4,000 responses necessary to up-date the books of accounts.
Purchases 235,000
Purchase discounts 2,500 Cash 200,000
Purchase returns and allowances 2,500 Accounts receivable 148,000
Freight-in 5,000 Allowance for doubtful accounts 3,000
Adverting expenses 35,000 Inventory, beginning 97,500
Freight-out 3,500 Prepaid insurance 12,000
Salaries expenses 36,000 Prepaid rent 48,000
Utilities expense 12,000 Office equipment 130,000
Representation expenses 12,000 Accumulated depreciation 13,000
Inventory, December 31, 2002 150,000 Store equipment 135,000
Accumulated depreciation 13,500
Accounts payable 58,000
Notes payable 30,000
OTHER INFORMATION
Sensible drawing 13,500
1. Sales amounting to P85,000 from which the Sensible capital Compute
business received cash of P10,000, a 6%-90 day Sales 490,000
notes receivable of P35,000 and the balance on Purchases 170,000
terms: 2/10; n/30, were not recorded. Freight – in 11,500
2. The accounts receivable of P15, 000 from sales of Supplies expense 12,500
December 28 was discovered to be unrecorded. Taxes and licenses 18,000
3. The business provides an allowance for doubtful Utilities expense, (65% administrative) 15,000
accounts equal to 5 percent of the outstanding Rent expense 44,000
accounts receivable. Sales salaries 36,000
4. Inventory of January 1, the beginning of the current Office salaries 24,000
period was understated by P15,000 whereas, the Purchase discounts 1,000
ending inventory was also understated by P25,000. Purchase returns and allowances 1,500
5. The prepaid insurance was composed of insurance Freight-out 1,500
amounting to P12,000 for office and the balance for Advertising expense 3,000
store. Both insurance was taken on August 1 of the Salesmen’s commission 6,000
current year and covered two years from date. Selling and general expenses 2,500
6. The office supplies purchased on October 1
amounting to P6,500 was not recorded. Upon count
it was found that only 25% of supplies remain on Adjusting entries
hand.
7. Store supplies which should have been debited to 1. Cash sales amounting to P85,000 were not
an asset account amounting to P12,000 was not recorded.
recorded. It was found that only 30% of these 2. The 6%, 90-day notes receivable of P15, 000 and its
supplies remain on hand. sales of December 28 were not recorded.
8. Depreciable assets were estimated to have 10-year 3. The business provides an allowance for doubtful
life with no scrap value. The owner agreed to accounts equal to 5 percent of the outstanding
depreciate the assets at the beginning of the year. accounts receivable.
4. The prepaid insurance and prepaid rent were taken
on August 1 of the current year and covered two
years from date.
5. The supplies per count amounted to P2,500.
6. Store supplies which should have been debited to
an asset account amounting to P12,000 was not
recorded. It was found that only 30% of these
supplies remain on hand.
7. Depreciable assets were estimated to have 10-year
life with 10% scrap value. The owner agreed that
only 6 months depreciation should be provided on all
depreciable assets.
8. The notes payable is an interest bearing note of 8%,
120-day. No interest had been taken up on this note
which was dated, October 1.
9. Sales include P15,000 cash received in advance
from Turk Company. This amount should have been
recorded as commission income. Of this amount
only 35% had been earned.
10. Advertising expenses of P36,000 was not recorded
as of December 31. The amount that was shown in
the trial balance represent asset and is still
applicable to the next accounting period.
11. It was discovered that P5,000 of salaries were still
unpaid pending completion of the pre- employment
requirements of one of the staff.
12. Utilities expense represents bills from electricity and
water. The business has not paid P5,000 for electric
bill chargeable to administrative expense.
13. The business failed to record P3,500 representation
expense.
III. Adjusting Entries. The following data were taken
from the books of Tungsten Merchandising Company as
of December 31. Give the necessary adjusting entries to
up-date its books of accounts.
1. A service maintenance contract was entered by the
company to service its machinery at a cost of P5,000
a month per machinery. Four machineries were
covered by the contact and payments for six months
were debited to Maintenance expense on October
31.
2. Supplies at the beginning of the year amounted to
P3,500. Purchases of supplies were made during
the year at an amount of P36,000 and were debited
to the expense account. At the end of the year, only
P2,500 remain on hand.
3. Total sales during the year amount to P750,000. Of
this amount only 48% was on account. The
company provides ¼ of total account sales as its
allowance for doubtful account.
4. A certain machine was acquired on May 18 at a cost
of P300,000. It was estimated that the life of this
machine was 5 years with 10% scrap value. It was
the company’s policy that acquisition on the first 15
days of the month was considered acquired at the
beginning of the month. Acquisition on the last 15
days of the month was considered as acquisition of
the following month.
5. The store supplies account on January 1 had a
balance of P7,500. During the year P5,500 worth of
supplies were purchased and this amount was
debited to an expense account. At the end of the
year, supplies on hand amount to P2,500.
6. The interest of 12%, for 120 days on the mortgage
payable to the bank was not taken up.
7. A vacant lot owned by the business was being
rented by the Car Repair Shop for P60,000 per
annum. The contact stated that the rent, which was
debited to an asset account, was for one year
starting May 1.
8. Upon physical count, the merchandise inventory on
hand as at December 31 of the current year
amounted to P150,000. The beginning inventory on
January 1 was P 75,000.
9. The interest of 8%, for 120-days on the notes
receivable from customers was not taken in the
books.
10. The payroll of P105,000 was for a six-day a week
period and was paid every Saturday. The
accounting period ended on a Thursday.
IV. Adjusting Entries. The books of accounts of Quebec
Novelty Store were under consideration for adjusting
entries as of December 31, 2009. Using the answer
sheet provided, prepare the adjusting journal entries that
should be made to up-date the records of the business.
1. The business owns five (5) delivery cars. A six-
month contract was signed beginning December 1,
2002 providing among others that maintenance shall
be made monthly. The advance payment for six
months was debited to an asset account for
P75,000.
2. The business paid rent in advance for 6-months
amounting to P60,000, debited to an expense
account. The contract signed was dated November
1 of the current year.
3. The business received P48,000 representing rent
paid in advance by one of the tenants. The contract
was signed on its effective date August 1.
4. On November 30, the business received a 6%
interest bearing note for P25,000. There was no
interest taken on this note that was dated,
November 1.
5. On December 1, the business received the loan
proceeds from Sanyo finance Company amounting
to P150,000. A 90-day note was issued with 9%
interest payable at maturity of the note.
6. On January 1, store supplies on hand amounted to
P5,500. Purchases of supplies during the year
amounted to P15,000 and were debited to an asset
account. At year end, physical inventory of supplies
revealed P7,500.
7. A six-month 12% interest bearing note was received
from a customer on September 1. The note of
P35,000 was for the sale of merchandise.
8. Salaries and wages unpaid at the end of the
accounting period amounted to P15,000.
9. The business subleased the ground floor of the
building at a monthly rental of P15,000. A six-month
rent was received on November 1 and was credited
to an income account on that date.
10. Sales for the year amounted to P650,000,
P200,000 of which was on account. Based on past
experience, 5% of the sales on account were the
provision for doubtful account.
END