Adjusting entries:

1. Carol Company has insured its building and a truck with Insular Insurance Co. The
following data related to the insurance coverage and premium payments. Annual premium
was paid on June 1, 2017

Property Insured Date of Coverage Annual Premium Paid

Building June 1, 2017- June 1, 2020 36,000.00

Truck June 1, 2017 - June 1 ,2018 12,000.00

a. If Carol Company use the asset method in payment of insurance, What would be the
adjusting entry on December 31, 2017?

ADJUSTING ENTRY;
Insurance Expense 28,000
Prepaid Insurance 28,000

EFFECT IF NO ADJUSTING ENTRY MADE

Asset Overstated Revenue __________

Liabilities __________ Expense Understated
Owner's equity Overstated Net Income Overstated

b. If Carol Company use the expense method in payment of insurance, What would be the
adjusting entry on December 31, 2017?

ADJUSTING ENTRY;
Prepaid Insurance 92,000
Insurance Expense 92,000

EFFECT IF NO ADJUSTING ENTRY MADE

Asset Understated Revenue _________

Liabilities ____________ Expense Overstated
Owner's equity __Understated_ Net Income Understated

How much is expense portion? __92,000__________________

How much is the asset portion? __28,000__________________

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 2. On July 15, 2017 Maky Company collected in advance cash of P96,000 from a tenant of her
building. This represents rental, which covers from the period August 1, 2017 to August 1,
2019 (two-year contract).

a. How much is the earned portion of the rental collected in advance for the year ended
December 31, 2017? 20,000
b. How much is the unearned portion of the rental collected in advance for the year ended
December 31, 2017? 76,000
c. Assuming that "Income method" was used in recording the precollection, what is the
adjusting entry on December 31, 2017?

ADJUSTING ENTRY;
Rent Income 20,000
Unearned Rent Income 20,000

EFFECT IF NO ADJUSTING ENTRY MADE

Asset _________________ Revenue _Overstated ____

Liabilities _Understated _____ Expense ______________
Owner's equity _Overstated_______ Net Income _Overstated_____

d. Assuming that "Liability method" was used in recording the precollection, what is the
adjusting entry on December 31, 2017?

ADJUSTING ENTRY;
Unearned Rent Income 76,000
Rent Income 76,000

EFFECT IF NO ADJUSTING ENTRY MADE

Asset _________________ Revenue _Understated____

Liabilities _Overstated_______ Expense _______________
Owner's equity _Understated______ Net Income _Understated____

3. A P96,000 12%, 120 day note was received from a client dated Nov. 1, 2017. The interest
was not yet collected at the end of December 31, 2017.

ADJUSTING ENTRY;
Accrued Interest Income 1,920
Interest Income 1,920

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 EFFECT IF NO ADJUSTING ENTRY MADE

Asset _Understated _____ Revenue Understated____

Liabilities _ _____ Expense ______________
Owner's equity _Understated_____ Net Income Understated____

4. Salaries from December 15-31, 2017 were accrued in the amount of 100,000.

ADJUSTING ENTRY;
Salaries Expense 100,000
Salaries Payable 100,000

EFFECT IF NO ADJUSTING ENTRY MADE

Asset _________________ Revenue ________________

Liabilities _Understated_______ Expense _Understated_____
Owner's equity _Overstated________ Net Income _Overstated______

5. On October 1, 2017, Marc Enterprises bought a brand new computer on account in an invoice
amount of P95,000. Cost of freight and installation was 15,000. The estimated useful life of
computer is 5 years and a scrap value of P10,000 at end of its life.

a. How much is the acquisition cost? 110,000

b. How much is the annual Depreciation? _20,000__
c. How much depreciation expense should be recorded on December 31, 2017?
_5,000_________________
d. How depreciation expense on Dec. 31, 2019? 20,000
e. How much is the net book value of asset on Dec. 31, 2020? 45,000

6. The following are the balances of December 31, 2017 of the following accounts:

Accounts Receivable 1,000,000.00

Allowance for doubtful accounts 50,000.00
Credit sales 5,000,000.00

a. Allowance for doubtful accounts should be based on 8% of account receivable.

b. Allowance for doubtful accounts should be based on aging of account of 90,000.
c. Allowance for doubtful accounts should be set up on 2% of credit sales.

Required:
1. Prepare adjusting entry of the above transactions (A, B, C are independent to each
other)
2. Compute the net realizable value of each assumption (A,B,C)

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 a. Allowance for doubtful accounts should be based on 8% of account receivable.
1,000,000 × .08 ¿ 80,000 (desired allowance)
80,000-50,000 ¿ 30,000

Doubtful Accounts Expense 30,000

Allowance for Doubtful Accounts 30,000

Accounts Receivable 1,000,000

Less: Allowance for Doubtful Accounts 80,000
Net Realizable Values of Accounts Receivable 920,000

b. Allowance for doubtful accounts should be based on aging of account of 90,000.

90,000-50,000 ¿ 40,000
Doubtful Accounts Expense 40,000
Allowance for Doubtful Accounts 40,000

Accounts Receivable 1,000,000

Less: Allowance for Doubtful Accounts 90,000 (50,000+40000)
Net Realizable Values of Accounts Receivable 910,000

c. Allowance for doubtful accounts should be set up on 2% of credit sales.

5,000,000 x .02 ⁼ 100,000

Doubtful Accounts Expense 100,000

Allowance for Doubtful Accounts 100,000

Accounts Receivable 1,000,000

Less: Allowance for Doubtful Accounts 150,000 (100,000+50,000)
Net Realizable Values of Accounts Receivable 850,000

7. From the give trial balance, prepare adjusting journal entries at the end of the year:

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 Maria Cristina Pascua, CPA
Trial balance
December 31, 2017

DEBIT CREDIT

Cash 53,000
Accounts receivable 85,000
Furniture & fixture 35,000
Accounts payable 27,000
Pascua, Capital 165,000
Service Income 56,000
Salaries Expense 75,000

a. Cash collected from a customer's account in the amount of P10,000 was not recorded in the
book. This covered by Official receipt No. 0521 dated December 31, 2017.

Debit: Accounts Receivable 10,000 Credit: Service Income 10,000

b. Payment of account to a supplier in the amount of P15,000 was not recorded. This is
covered by check No. 00751 as per check stub on file.

Debit; _ Supplies Expense 15,000___ Credit; Supplies Payable 15,000_

c. Cash withdrawal of the owner amounting to P5,000 was erroneously charged to Salaries
Expense.

Debit; _Pascua, Drawing__5,000______ Credit: Salaries Expense _ 5,000______

d. Furniture and fixtures was acquired on March 31, 2017 with an estimated life of 5 years with
a residual value of P5,000 at the end of its life.

Debit; _Depreciation Expense 4,500___ Credit; __Accumulated Depreciation 4,500

e. Provision for doubtful accounts are estimated to be at 1.5 % of the account receivable.

Debit; _Doubtful Accounts Expense 1,275 Credit; Allowance for Doubtful Accounts 1,275

How much is the total asset after adjustment? _ 177,225_____________________

How much is total liabilities after adjustment? __ 42,000______________________
How much the owner's equity after adjustment? __133,225_____________________

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