ADJUSTING ENTRIES

PROBLEM 1
Prepare adjusting journal entries from the books of Silent Company as of
December 31, 2021. Consider the following information:

1. Office supplies acquired during the year amounted to P86,000. Office

supplies account had a beginning balance of P22,000 and the same
account has an ending balance of P 36,000.

Office Supplies Expense 72,000

Office Supplies 72,000

Beg. Bal. P 22,000

Purchase 86,000
Total P 108,000
End. Balance (36,000)
Office Supplies used P P72,000

2. The Prepaid Insurance account has a balance of P96,000 as of yearend.

The balance represented two insurance policies acquired during the year
as follows: Policy A for P51,000 dated February 1, 2021 and Policy B was
acquired on August 31, 2021 for P45,000;

Insurance Expense 61,750

Prepaid Insurance 61,750

Expired portion:
Policy A (P51,000 x 11/12) P 46,750
Policy B (P45,000 4/12) 15,000
Total P 61,750
3. New equipment was installed on April 1 of the current year at a cost of
P846,000. The equipment is estimated to have a salvage value of
P20,000 and useful life of 14 years.

Depreciation Expense 44,250

Accumulated Depreciation 44,250

Cost P P846,000
Salvage value (20,000)
Depreciable cost P P826,000
Estimated useful life ÷ 14 years
Annual Depreciation P 59,000
No. of months used in 2021 x 9/12
Depreciation Expense, 2021 P 44,250

4. On September 21, 2021 the company borrowed P280,000 from the BPI by
issuing a 20% one-year note.

Interest Expense 15,711

Interest Payable 15,711

Accrued Interest Expense:

(P280,000 x 20% x 101/360) P 15,711

5. The ledger balance of Supplies as of year-end is P18,920 of which

P12,000 is unconsumed.

Supplies Expense 6,920

Supplies 6,920

(P18,920 – P12,000) P 6,920

6. Silent Company entered into a lease agreement with another company on

March 1, 2021 for rental of office space for the next 12 months for
P156,000. A second lease was signed on November 2 of the same year
for storage space for 6 months for P 56,400 both paid in advance.

Rent Expense 148,800

Prepaid Rent 148,800

First lease agreement (P156,000 x 10/12) P130,000

Second lease agreement (P56,400 x 2/6) 18,800
Total amount of expired rent P148,800
 7. Salaries per general ledger is P288,000 of which P 5,600 is paid in
advance.

Prepaid Salaries 5,600

Salaries Expense 5,600

8. Advertising contract is recorded at P62,000 as Advertising expense. This

is a 10-month contract signed Feb. 1, 2021.

No adjusting journal entry needed.

9. Notes Receivable has a balance of P40,000 which is a 120 day 12% note
received December 23, 2021.

Interest Receivable 106.67

Interest Revenue 106.67

Accrued interest revenue (P40,000 x 12%

8/360) P 106.67

10. Fees Collected in Advance has a balance of P174,000 of which 80% has
been earned.

Fees Collected in Advance 139,200

Fees Revenue 139,200

(P 174,000 x 80%) P 139,200

11. Interest Income of P6,200 is recorded of which P2,600 is actually earned.

Interest expense of P4,200 is recorded , of this P1,200 is paid in advance.

Interest Income 3,600

Unearned Interest Income 3,600
(P6,200 – P2,600) P 3,600

Prepaid Interest 1,200

Interest Expense 1,200
PROBLEM 2

The following information were gathered from the records of New Zealand
Company as of December 31, 2021:

a. Prepaid Insurance has a balance of P60,000 per General Ledger, of which

P40,000 is expired.
Insurance Expense 40,000
Prepaid Insurance 40,000

b. Advertising Expense shows a balance of P52,000, paid on September 30,

2021 and the contract is for 8 months.

Prepaid Advertising 32,500

Advertising Expense 32,500
(P52,000 x 5/8)

c. Notes Payable was issued on November 28, 2021 for P100,000 at 15%
for one year. No interest has been accrued on this note.

Interest Expense 1,250

Interest Payable 1,250
(P100,000 x 15% x 1/12) P1,250

d. Equipment has a balance of P250,000 acquired on March 1, 2021 with life

of 4 years and residual value of P10,000.

Depreciation Expense 50,000

Accumulated Depreciation – Equip. 50,000
(P250,000 – P10,000) / 4 x 10/12 P 50,000

e. Building was acquired on June 30, 2020 at a cost of P45,000,000 with a

scrap value of P80,000 and life of 40 years.

Depreciation Expense 1,123,000

Accumulated Depreciation – Bldg. 1,123,000
(P45M – P80,000) / 40)
f. Office supplies has a balance per General Ledger of P18,000. Of this
amount, P12,000 was consumed.

Office Supplies Expense 12,000

Office Supplies 12,000

g. Notes Receivable was received on November 1, 2021 in the amount of

P60,000 at 16% per annum. No interest has been accrued on the note.

Interest Receivable 1,600

Interest Revenue 1,600
(P60,000 x 16% x 2/12)

h. Furniture and Fixtures has a General Ledger balance of P320,000 as of

December 31, 2021. Additional fixtures were acquired on March 31, 2021
in the amount of P40,000. Furniture and fixtures are depreciated at 12%
per year.

Depreciation Expense 37,200

Accum. Dep. – Furn. Fixt. 37,200

P280,000 x 12% P33,600

P40,000 x 12% x 9/12 3,600
P37,200

i. Taxes and Licenses balance per General Ledger is P32,000 of which

P6,000 applies to the year 2021.

Prepaid Taxes and Licenses 26,000

Taxes and Licenses 26,000
(P32,000 – P6,000)

j. Rent Expense has a balance of P144,000 paid on September 1, 2021.

Contract on the rent is for one year.

Prepaid Rent 96,000

Rent Expense 96,000
(P144,000 x 8/12)
 k. Unpaid Salaries as of year-end, P12,000.

Salaries Expense 12,000

Salaries Payable 12,000

l. Accounts Receivable has a balance of P600,000 and Allowance for

Doubtful Accounts is P50,000. It is estimated that 12% of Accounts
Receivable is considered uncollectible.

Doubtful Accounts Expense 22,000

Allowance for Doubtful Accts. 22,000

Required Balance (P600,000 x 12%) P72,000

Allowance for Doubtful Accts., Before Adj. 50,000
Doubtful Accounts Expense P22,000

REQUIRED:
Prepare necessary adjusting journal entries on December 31, 2021.
PROBLEM 3

1. A small business reported these balances on their Wages Payable account at

the beginning and end of 2021:

January 1, 2021 P11,000 December 31, 2021 14,000

If wages of P18,500 were paid in cash during the year, what amount
would be reported for Wages expense in 2021?

Wages Payable, Dec. 31, 2021 P14,000

Salaries Paid 18,500
Total P32,500
Wages Payable, Jan. 1, 2021 (11,000)
Wages Expense P21,500

Or,

WAGES PAYABLE
Paid 18,500 Jan. 1 11,000
Dec. 31 14,000 Expense 21,500

2. On August 1, 2021, IRH Co. collected 8 months’ rent revenue of P142,000 in

advance. The Co. debited cash and credited Deferred Rent. Adjusting entry
have to be prepared on December 31, 2021.

What is the liability account on December 31, 2021?

Deferred rent (P142,000 x 3/8) P 53,250

3. The Store supplies account had a P12,500 balance at the beginning of the
year, P56,000 of store supplies were purchased during the year, and an
inventory of unused store supplies at the end of the year totaled P15,000.

How much is the Store Supplies Expense for the year?

Beg. Balance P12,500

Purchased 56,000
Total 68,500
Unused (15,000)
Used (Expense) P53,500

STORE SUPPIES
Beg. 12,500 Used 53,500
Purch. 56,000 End 15,000

4. The Co’s two office employees earn P350 per day and P400 per day
respectively. They were paid every Friday for 5-day work that begins on
Monday. This year, December 31 fell on a Tuesday, and the employees both
worked on Monday and Tuesday.

How much salaries should be accrued on December 31?

Employee 1 (P350 x 2 days) P 700

Employee 2 (P400 x 2 days) 800
Accrued Salaries P 1,500

5. On September 30, 2021, Orange Company paid P180,000 for one year rental
covering the period from October 1, 2021 to September 30, 2022. The
payment was originally recorded as an expense account.

How much rent expense is reported in the statement of comprehensive

income of Orange Company for the year ended December 31, 2021?

Rent Expense (P180,000 x 3/12) P45,000

6. Tin- Tin Company acquired an equipment costing P480,000 on January 2,
2021. The equipment is being depreciated using straight-line method. It is
estimated to have a useful life of five years and a residual value of P30,000.

a. What is the accumulated depreciation balance that would be shown

on December 31, 2022?

Accumulated Dep.,
(P480,000 – P30,000) / 5 = P90,000 x 2 P 180,000

b. Assuming the equipment will be sold on April 1, 2023 at P250,000,

how much is the gain or loss on sale of equipment?

Selling Price P250,000

Less: Book Value, April 1, 2023
Cost P480,000
Acc. Dep., April 1, 2023
(P90,000 x 2.25 years) (202,500) 277,500
Gain (Loss) on sale P(27,500)

7. A machinery purchased for P585,000 on April 1, 2020 was sold on

September 30, 2021 for P355,000. If the machinery has an estimated useful
life of 8 years and has a residual value of P25,000.

How much is the gain (loss) on the sale of machinery?

Selling Price P355,000

Less: Book Value
Cost P585,000
Acc. Dep. (P585,000 – P25,000) / 8
x 1.5 years (105,000) 480,000
Gain (Loss) on Sale P(125,000)
8. Before year-end adjustments are made, the December 31, 2021 Trial Balance
of Alba Company contains revenue of P146,000 and expenses of P85,700,
adjustments are necessary for the following items:

Fees earned in year 2021, not yet billed to customers, P32,000;

Depreciation for year 2021, P28,000;
Portion of prepaid insurance applicable to year 2021, P18,400
Portion of fees collected in advance earned in year 2021, P12,500

a. Compute for the correct revenue.

b. Compute for the correct expenses.
c. Compute for the correct profit for 2021.

Revenue (P146,000 + P32,000 + P12,500) P190,500

Expenses (P85,700 + P28,000 + P18,400) (132,100)
Profit P 58,400

9. Miguel Co. prepared an aging of its accounts receivable at

December 31, 2021 and determined that the net realizable value of the
receivable at that date is P1,000,000. Additional information is available:

Accounts receivable, Dec. 31, 2020 P 960,000

Accounts receivable, Dec. 31, 2021 1,080,000
Allowance for doubtful accounts, Dec. 31, 2020 (credit) 120,000
Accounts written off as uncollectible during 2021 100,000

a. Compute the doubtful account expense for 2012?

b. How much is the allowance for doubtful account balance?

Allow. For Doubtful Accts., End. (Required) P80,000

(P1,080,000 – P1,000,000)
Allow. For Doubtful Accts. Before adjustment
(P120,000 – P100,000) (20,000)
Doubtful Accounts Expense P60,000

Or,

ALLOW. FOR DOUBTFUL ACCTS.

WO 100,000 Beg. 120,000
End 80,000 DAE 60,000
10. Clark Co. allowance for doubtful accounts had a credit balance of P12,000 at
January 1, 2021. Clark accrues doubtful account expense at 4% of
outstanding accounts receivable of P1,500,000. Uncollectible amounting to
P48,000 were written off. The aging of accounts receivable indicated that
P50,000 allowance for doubtful accounts was required at December 31, 2021.

a. Compute Clark’s Doubtful account expense for year 2021.

b. How much is the balance of the allowance account on December 31,

2021?

Allow. For Doubtful Accts., End. (Required) P50,000

Allow. For Doubtful Accts. Before adjustment
(P12,000 - P48,000) – Debit balance (36,000)
Doubtful Accounts Expense P86,000

Or,

ALLOW. FOR DOUBTFUL ACCTS.

WO 48,000 Beg. 12,000
End 50,000 DAE 86,000
11. The following data were taken from the books of Aimee Co.

Rent paid during the period P187,000

Accrued rent expense, January 1, 2021 28,000
Accrued rent expense, December 31, 2021 15,000

Using the above data, how much would be the amount of rent that must
be reported in year 2021.

Accrued rent expense, Dec. 31 P 15,000

Rent paid - 2021 187,000
Total P 202,000
Accrued rent expense, Jan. 1 (28,000)
Rent expense P 15,000

ACCRUED RENT EXPENSE

Paid 187,000 Jan. 1 28,000
End 15,000 Exp. 174,000

12. ABC receives a 90-day, 6 percent note receivable from a client for the repair
of a computer for P20,000. The repair was done on Sept. 16. ABC’s
accounting period ends on September 30.

How much is the accrued interest income?

Accrued interest income (P20,000 x

6% x 14/360) P 47
13. A Rental Company reported these two different balances in their Unearned
Rent account at the beginning and end of Year 2021:

Jan. 1, 2021 P26,000

Dec. 31, 2021 P32,000

If rent revenue for year 2021 was P263,000, how much cash was
received by the company as advance payments for rent due in year
2021?

Unearned rent, Dec. 31 P 32,000

Rent revenue 263,000
Total P 295,000
Unearned rent, Jan. 1 (26,000)
Cash received in advance P269,000)

Or,
UNEARNED RENT
Earned 263,000 Jan. 1 26,000
Dec. 31 32,000 Cash 269,000

14. On October 1, 2021, an investment bank loaned P300,000 to a small

business payable within 9 months at 12 percent. The bank’s accounting
period ends on December 31, 2021.

What amount would be reported in the bank's 2021 statement of

comprehensive income as Interest Revenue?

Interest revenue (P300,000 x 12% 3/12) P9,000