AE17/Intermediate Accounting Part 3

Quiz No. 1
Problem 1

Canada Corporation, which sponsors tours of major cities in Visayas and Mindanao, adjusts and
closes its accounts every December 31. The following situations require adjusting entries at the
current year-end. You are requested to prepare the adjusting entries in the general journal for
each situation. If no entry is required for an item, explain why.

a. Machine A is to be depreciated for the whole year. It costs P45,000 and the estimated
useful life is five years, with an estimated residual value of P5,000. Use straight-line
depreciation.
b. Credit sales for the current year amounted to P80,000. The estimated bad debt loss rate on
credit sales is 0.5 percent.
c. Property taxes for the current year have not been recorded or paid. A statement for the
current year was received near the end of December for P2,000; if paid after February 1 in
the next year, a 10 percent penalty is assessed.
d. Office supplies that cost P400 were purchased during the year and debited to office supplies
inventory. The inventories of these supplies on hand were P100 at the end of the prior year
and P150 at the end of the current year.
e. Canada rented an office in its building to a tenant for one year starting on September 1.
Rent for one year amounting to P3,000 was collected at the date. The total amount
collected was credited to rent revenue.
f. Canada received a note receivable from a customer dated November 1 of the current year.
It is a P6,000, 10% note, due in one year. At the maturity date, Canada will collect the
amount of the note plus interest for one year.

Problem 2

a. Purple Company began subleasing office space in its new building in 2020. At December
31, Purple Company had the following rental contracts that are paid in full for the entire
term of the lease. Purple Company recorded an advance collections initially under a
revenue account.
Date Term (month) Contract Price
August 1 15 P270,000
October 1 9 360,000

The appropriate adjusting entry to be made at December 31, 2020 is

b. Supplies costing P46,000 were acquired during the year and was recorded to a real
account. A count made on December 31, 2020 indicated that supplies on hand was
P11,500. The appropriate adjusting entry to be made at December 31, 2020 is
c. The allowance for bad debts has an unadjusted balance of P22,500 as of December 31,
2020. Based on an aging schedule, it is determined that the amount estimated to be
uncollectible is P36,000. The appropriate adjusting entry to be made at December 31,
2020 is
d. A truck costing P1,200,000 was acquired on September 30, 2020. It has an estimated
useful life of 15 years and a residual value equal to 5% of cost. The straight-line method is
used in recording depreciation. The appropriate adjusting entry to eb made at December
31, 2020 is
e. Forwarded a loan to another company on May 1, 2020 and received a 10-month, 15% note
with a face amount of P1,500,000. The appropriate adjusting entry to be made on
December 31, 2020 is

Problem 3

The following is the year-end adjusted trial balance for a firm just completing its first year:

Debit Credit
Cash 100
Accounts receivable 400
Prepaid insurance 200
Supplies 150
Equipment 8,000
Accounts payable P800
Wages payable 400
Ordinary equity shares 5,300
Service revenue 3,000
Expenses (several) 650
Total P9,500 P9,500

Requirement:
1. This firm has total assets of __________________.
2. When the firm prepares its statement of financial position, it will report what amount of total
owners’ equity?