GENSANTOS FOUNDATION COLLEGE, INC.

Bulaong Extension, General Santos City 9500
BSA/BSAT/BSMA Department
AUDITING PROBLEMS E.J. SEBUA,
CPA
REVIEW OF ACCOUNTING CYCLE
Problem 1. ADJUSTING ENTRIES
For the ff. independent cases, determine the adjusting journal entry that should be recorded at December 31, 2022.
1. On December 1, Acer Tax Services received a P20,000 cash retainer for tax preparation services to be
rendered ratably over the next 4 months.
a. CASE 1 – The full amount was credited to a liability account.
b. CASE 2 – The full amount was recognized as revenue.
2. On December 1, 2022, JC Company purchased a general liability insurance policy for P3,600 to provide
coverage for one year.
a. CASE 1 – The company recorded the policy as an asset.
b. CASE 2 – The company expensed the cost on December 1, 2022.
3. Salaries of P600 are unpaid as at December 31, 2022.
4. Revenue earned but unbilled as at December 31, 2022 total P750.
5. Utility expenses of P200 are unpaid as at December 31, 2022.
Problem 2. REVERSING ENTRIES
A company receives interest on a P40,000, 8%, 5-year note receivable each April 1. On December 31, 2022, the ff.
adjusting entry was made to accrue interest receivable:
Interest Receivable 2,400
Interest Revenue 2,400
Required:
1. Assuming that the company does not use reversing entries, what entry should be made on April 1, 2023
when the annual interest payment is received?
2. Assuming that the company does use reversing entries, what entry should be made on April 1, 2023 when
the annual interest payment is received?
Problem 3. ADJUSTING ENTRIES
The ff. data were obtained from an analysis of the accounts of Noble Distributor Company as of March 31, 2023, in
preparation for the annual report. Noble records current transactions in nominal accounts. What are the appropriate
adjusting entries?
a) Prepaid insurance has a balance of P10,100. The company has the ff. policies in force:

Policy Date Term Cost Coverage

A 1/1/23 2 years P3,600 Shop Equipment
B 12/1/22 6 months 1,800 Delivery equip.
C 7/1/22 3 years 12,000 Buildings

b) Unearned subscription revenue has a balance of P56,250. The ff. subscriptions were collected during the
current year. There are no other unexpired subscriptions.
Effective date Amount Term
July 1, 2022 P27,000 1 year
October 1, 2022 P22,200 1 year
January 1, 2023 P28,800 1 year
April 1, 2023 P20,700 1 year

c) Interest Payable has a balance of P825. Noble owes a 10%, 90-day note for P45,000 dated March 1, 2023.
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         GENSANTOS FOUNDATION COLLEGE, INC.
Bulaong Extension, General Santos City 9500
BSA/BSAT/BSMA Department
AUDITING PROBLEMS E.J. SEBUA,
CPA
d) The Office Supplies account had a balance of P3,000. During the year, additional office supplies were
purchased for P3,800 and that amount was debited to Office Supplies Expense. On March 31, a physical
count of office supplies revealed that there was P3,400 on hand.
e) Salaries Payable has a balance of P9,750. The payroll for the 5-day workweek ended April 3 totalled P11,250.
THEORETICAL:
1. Which of the ff. is not an internal event?
a. Depreciation b. Dividend declaration and payment
c. Use of raw materials in production d. All of these are internal transactions

2. A trial balance
a. Proves that debit and credits are equal in the ledger.
b. Supplies a listing of open accounts and their balances that are used in preparing financial
statements.
c. Is normally prepared three times in the accounting cycle
d. All of these

3. The debit and credit analysis of a transaction normally takes place

a. When the entry is posted to a subsidiary ledger.
b. When the entry is recorded in a journal.
c. When the trial balance is prepared.
d. When the financial statements are prepared.

4. Which of the ff. is not among the first five steps in the accounting cycle?
a. Record transactions in journals b. Adjust the general ledger accounts
c. Record closing entries d. Post entries to general ledger

5. Adjusting entries are necessary to

I. Obtain a proper matching of revenue and expense
II. Achieve an accurate statement of assets and equities
III. Adjust assets and liabilities to their fair market value
a. I b. II c. III d. I and II

6. Alternative adjusting entries do not apply to

a. Accrued revenues and expenses b. Unearned revenues
c. Prepaid expenses d. Prepaid expenses and unearned revenues

7. Reversing entries are

I. Normally prepared for prepaid, accrued and estimated items.
II. Necessary to achieve a proper matching of revenue and expense.
III. Desirable to exercise consistency and establish standardized procedures
a. I b. II c. III d. I and II

8. Adjusting entries that could be reversed include those for prepaid and unearned items that

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         GENSANTOS FOUNDATION COLLEGE, INC.
Bulaong Extension, General Santos City 9500
BSA/BSAT/BSMA Department
AUDITING PROBLEMS E.J. SEBUA,
CPA
a. Create an asset or a liability account.
b. Were originally entered in a revenue or expense account.
c. Were originally entered in an asset or liability account.
d. Create an asset or a liability account and were originally entered in a revenue or expense
account.

9. If, during an accounting period, an expense item has been incurred and consumed but not yet paid for or
recorded, then the end of period adjusting entry would involve
a. Liability and asset account b. Asset or contra asset and an expense
account
c. Liability and expense account d. Receivable and revenue account.

10. Adjusting entries normally involve

a. Real accounts only b. Real and nominal accounts

c. Nominal accounts only d. Liability accounts only

11. Which of the following would not be a correct form of an adjusting entry?

a. Debit to revenue and credit to liability b. Debit to expense and credit to liability
c. Debit to liability and credit to revenue d. Debit to asset and credit to liability

12. Year-end net assets would be overstated and current expenses would be understated as a result of failure to
record which of the ff. adjusting entries?

a. Expiration of prepaid insurance b. Depreciation of fixed assets

c. Accrued wages payable d. All of these

13. A chart of accounts is

a. A subsidiary ledger b. A listing of all account titles

c. A general ledger d. A general journal

14. Which of the ff. errors will be detected when a trial balance is properly prepared?

a. An amount that was entered in the wrong b. A transaction that was entered twice
account
c. A transaction that had been omitted d. None of the above

15. The premium on a two-year insurance policy expiring on June 30, 2022 was paid in total on July 1, 2020. The
original payment was debited to the insurance expense account. The appropriate journal entry has been recorded
on December 31, 2020. The balance in the prepaid asset account on December 31, 2020 should be

a. The same as the original payment.

b. Higher than if the original payment had been initially debited to an asset account.
c. Lower than if the original payment had been initially debited to an asset account.
d. The same as it would have been if the original payment had been initially debited to an asset account.

16. An adjusting entry will not take the format of which one of the ff. entries?

a. A debit to an expense and a credit to an asset account

b. A debit to an expense and a credit to a revenue account
c. A debit to an asset account and a credit to a revenue account
d. A debit to a liability account and a credit to a revenue account

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         GENSANTOS FOUNDATION COLLEGE, INC.
Bulaong Extension, General Santos City 9500
BSA/BSAT/BSMA Department
AUDITING PROBLEMS E.J. SEBUA,
CPA
17. The last step in the accounting cycle is to

a. Prepare post-closing TB b. Journalize and post-closing entries

c. Prepare financial statements d. Journalize and post-adjusting entries

18. If an expense has been incurred and not yet recorded, then the end-of-period adjusting entry would involve

a. A liability and asset account

b. A liability and expense account
c. An asset and expense account
d. A receivable account and a revenue account

19. At the end of the year, Drew Company made four adjusting entries for the ff. items:
I. Depreciation expense, P25,000
II. Expired insurance, P2,200 (originally recorded as prepaid insurance)
III. Interest payable, P6,000
IV. Rental revenue receivable, P10,000

In the normal situation, to facilitate subsequent entries, the adjusting entry or entries that may be reversed is/are

a. III b. IV c. III and IV d. II, III, and IV

20. Computer consulting company initially records prepaid expenses as assets and unearned items as liabilities.
Selected account balances at the end of the current year and prior year follow. Accrued expenses and revenues are
adjusted only at year-end.

Adj. balances, Dec. 31, 2015 Adj. balances, Dec. 31, 2016
Prepaid rent P6,200 P3,600
Salaries and wages payable 1,900 4,500
Unearned consulting fees 16,400 6,400
Interest receivable 650 1,800
During 2016, computer consulting paid P10,000 for rent and P50,000 for wages. It received P108,000 for consulting fees
and P2,400 as interest.

Required:

1 Provide the entries that were made at December 31, 2016, to adjust the accounts to the year-end
balances shown above.
2 Determine the amount of Rent expense, salaries and wages expense, consulting fees revenue, and interest
revenue to be reported on the current-year income statement.

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