| problem 45-16 (AICPA Adapted) pased on 2008 sales of compact discs : ith Laser C i , contract wit ‘Ompany the artist eared P t ae 1,000, gata me for anticipated retums. In oe paid the artis 000 in 2008 as a reasonable estimate of the amount recoverable from future royaities to be earned by the artist. What amount should Laser report in th i for royalty expense? ort.in the 2008 income statement 3, 1,000,000 Sie Bek p, 1,080,000 ¢, 1,750,000 4. 1,830,000 Solution 45-16 Answer a Royalty expense (earned by artist in 2008) 1,000,000 Problem 45-17 (AICPA Adapted) ¥ On July 1,-2008, Roxy Company obtained fire insurance at an - annual premium of P72,000 payable on July 1 of each year. The "first premium payment was made July 1, 2008. On October 1,208, « Roxy paid P24,000 for real estate taxes to cover the period ending September ‘30, 2009, This prepayment was made to obtain a discount. In its December 31, 2008 statement of financial position, Roxy should report prepaid expenses of . 60,000 . 54,000 : 48,000 . 36,000 ee ae am > ae Solution 45-17 Answer b. ‘ 36,000 Prepaid insurance (72,000 x 6/ 12) 18,000 Prepaid taxes - (24,000x 9/12) ay Total prepaid expenses ~ 12/31/2008 posh 000 recorded by an artist under °Problem 45-18 (AICPA Adapted) An analysis of Thrift Company’s unadjusted prepaid expense account at December 31, 2008, revealed the following: ~ + An opening balance of P150,000. for Thrift’s comprehensive insurance policy. Thrift had paid an annual premium of P300;000 on July: 1, 2007. ys : + A P320,000 annual insurance premium payment made July 1, 2008. : ‘ : ue * A P200,000 advance rental payment for a warehouse Thrift leased for one year beginning January 1, 2009. : In its December 31, 2008 statement of financial position, what _ amount should Thrift report as prepaid expenses? a a - a. 520,000 b. 360,000 . Ned c. 200,000 i 7 d. 160,000 Solution 45-18 Answer b Prepaid insurance (320,000 x 6/12) i ~~ 160,000, Prepaid rent : 200,000 Total prepaid expenses - December 31, 2008 oe 360,000 Problem 45-19 (AICPA Adapted) Under Harlett Company’s accounting system, all insurance premiums paid are debited to prepaid insurance. For interim financial reports, Harlett makes monthly estimated charges to insurance expense with credits to prepaid. insurance. Additional information for the year ended December 3 1, 2008 is as follows: Prepaid insurance at December 31, 2007 210,000 Charges to insurance expense during 2008 (including a year-end adjustment of P35,000) '.' 875,000 Unexpired insurance premiums at December 31, 2008 245,000at was the total amount of insurance during 2008? © premiums paid by Harlett a. 910,000 . 875,000 ¢. 840,000 4, 665,000 Solution 45-19 Answer a Insurance paid (SQUEEZE) : 910,000 ‘Add: Prepaid insurance - 12/31/2007 ~ + 210,000 Total 8 EG 1,120,000 Less: Prepaid insurance - 12/31/2008“ : "245,000 ‘Jnsurance expense ‘ i ws 875,000. The insurance paid is “squeezed” by working back from the insurance expense. Problem 45-20 (AICPA Adapted) ~ Rara Company paid P72,000 to. renew its only. insurance policy for three years on March 1, 2008, the effective date of the policy. At March 31, 2008, Rata’s unadjusted trial balance showed a balance of P3,000 for prepaid insurance and P72,000 for insurance expense. What amounts should be reported for prepaid insurance and insurance expense in Rara’s financial statements for the three months ended March 31, 2008? Prepaid insurance ‘Insurance expense: a 70,000 ; ats bo 70,000 as ¢ 72,000 , ° 300 d 73,000 : ,Solution. 45-20 Answer b i 72,000 x 35/36 Prepaid insurance ~ March 31, 2008 ( ) | 20% Kk soe ae urance expense Per. boo! s Pnad insurance before adjustment Ae i ' 75,000 tal en Prepaid insurance - March 31, 2008 “aoe Insurance expense ‘ "9 Problem 45-21 (IAA) On December 31, 2008, the prepaid insurance account showed a debit balance of P500,000. The balance on January 1, 2008 was P600,000. During the year, the entity paid insurance premium'of: P800,000. If insurance premium payment is initially entered in the prepaid insurance account, the adjusting entry on December 31, 2008 would include : : cn Debit to prepaid insurance for P900,000. Credit to prepaid insurance for P1,000,000. Debit to insurance expense for P700,000. Debit to insurance expense for P900,000. po oP -Solution 45-21 Answer d Prepaid insurance — January 1 : ~~ 600,000 Insurance payment debited to prepaid insurance 800,000 Total , i 1,400,000 Prepaid insurance — December 31 ; (_ 500,000) e (_ 500," Insurance expense’ : s) * 900,000 ——— The entry for the insurance payment is: ‘ Prepaid insurance ‘ 800,000 mC 800,000 The adjusting entry on December 31 is: Insurance expense a ( Prepaid insurance a ' 900,000problem 45-22 (IAA) ‘An entity paid P1,000,000 for supplies during 2008. The full amount of P1,000,000 was debited to supplies inventory: The January 1, 2008 balance of supplies inventory was P360. 000 A physical count of the, ee on hand on December 31, 2008 revealed an amount of Bi 0,000. The December. 31, 2008 adjusting entry for supplies was” : a: a. Debit supplies expense and credit supplies. inventory for 760,000. : : b. Debit supplies ‘expense and: credit supplies inventory for P600,000. RRA ae : “ce. Debit supplies inventory and credit. supplies expense, for { *. P600,000. : Ge d. Debit supplies inventory and credit supplies expense for P240,000. dshgels . binky : ‘ 5 ‘ Solution 45-22 Answer a i 360,000 Supplies inventory — January 1 ve Payment for supplies debited to supplies inventory 1,000,000 Total) ee i 1,360,000 ‘Supplies inventory ~ December 31 ( 600,000) Supplies expense’ 160,000 Problem 45-23 (IAA) On January’ 1,'2008, an entity reported supplies inventory of lies purchased amounted P1,200,000, During the current year, SUPP .d to supplies expense. to P3,400,000 and the purchases were charged li The December 31, 2008 statement-of financial position showed ies i i de‘on suppl tory of P900,000. Ifno reversing entry was made jana scar eae amount needed for the year-end adjusting | entry for supplies expemse was a. 2;500,000 increase Hi b. 2,500,000 decrease age c. 300,000 -increase f d. 300,000 decrease 935Solution 45-23 Answer ¢ wats —January:1 : 1,200,000 Supplies inventory Supplies inventory — December 31 S009 Decrease in supplies inventory - 300009 justi mber 31 is: ene ee a The adjusting entry on aoe ; ; Ste expense F 300,000 Supplies inventory 00004 Note that the question is the adjusting entry for supplies expense, Thus, there is an increase in supplies expense. Actually, the total supplies expense is P3,400,000 plus the adjustment of P300,000 or P3, Le ooo Problem 45-24 (AICPA Adapted) Rice Company’s salaried eilores are paid biweekly. Advances made to employees are paid back by payroll deductions. Information rey to salaries follows: ; 12/31/2007. 12/31/2008 Employee advances 240,000, . 360,000 Accrued salaries payable ~~ 400,000 2 Salaries expense during the year 4,200,000 Salaries paid during the year (gross) - 3,900,000 In Rice’s December Sie acerued salaries payable 940,000 820,000 700,000 300,000 2008 statement of financial position, was Re SPSolution 45-24 Answer ry Accrued salaries payable - 12/31/2097 ‘Add: Salaries expense , 400,000 Toa 4,200,000 - Less: Salaries paid 4 000 ‘Accrued salaries payable - 12/31/2008 eae : Problem 45-25 (IAA) the income statement. The previous year’s statement of financial . position reported P100,000 of wages payable. An analysis of the payroll records showed wage payments during the year of P950,000. Ifthe previous year’s adjusting entry for unpaid wages was reversed on January 1, 2008, what is the,amount of the adjusting entry for accrued wages payable on December.31, 20087 . _ a. 250,000 b.. 400,000 c. 150,000 d. 850,000. , Solution 45-25 Answer a. Wages payable — January 1 + : ; 100,000 Wages expense fe ; ‘ 1,100,000 Total i S “1,200,000 Wage payments duringthe year . (950,000) 250,000. Wages payable —December 31 . Problem 45-26 (AICPA Adapted) i! had a balance Doren-Company’s compensation expens® account had a of 490,000 at ae 31, 2008 before any appropriate year- end adjustment relating to the following: the week of December 25-31, led P18,000 and were paid No salary accrual was made fot 2008. Salaries for this period total on January 5, 2009. 937* Bonus for 2008 was paid oh January 31, 207 in-the total amount of P175, 000. . “The adjusted balance for compensation expense oo the yéar ended December 31, 2008 should be a. 683,000 b, 665,000 c= 508,000 d. 490,000 Bosal i sonchantt Solution 45- 26 Answer a Compensation expense per book : . 490,000 “Add; Accrued salaries % », 18,000 Accrued bonus ~ Bey 175,000. Total compensation expense». \ _/ z 683,000 Problem 45-27 (AICPA Adapted) ’ At December 31, 2008, Ashe Company had a P990, 000 eles in its advertising expense account before any year-end adjustments ‘relating to the following: » * Radio and television advertising spots broadcast during December 2008, were billed to Ashe on January 4, 2009. The invoice cost of P50,000 was paid on January 15, 2009. a Included in the P990,000 is P60,000 for newspaper advertising for a January 2009 sales promotional campaign. Ashe’s advertising expense for the year ended cy 31, 2008 should be «2 a.) 930,000 b. 980,000 c. 1,000,000 © d- 1,040,000eh Solution 45-27 Answer b palance per book a : Tan dd: Radio advertising accrued on December 31, 2008 750,000 Total i { + 640 600 ~ Less; Prepaid newspaper advertising { pny Advertising expense : Foxe problem 45-28 (AICPA Adapted) Pak Company’s professional fees expense account had a balance of P820,000 at December 31, 2008, before considering year-end adjustments relating to the following: \.i"5 + Consultants were hired for a special project at a total fee not to exceed P650,000. Pak has recorded P550,000 of this fee based on billings for work performed in 2008. : + The attorney’s letter requested by the auditors dated Jarfuary 31, 2009, indicated that legal fees of P60,000 were billed’ on January 15, 2009 for work performed in November 2008, and pnbilled fees for December 2008 were 70,000. What amount should Pak report for professional fees expense for the year ended December 3 1, 2008? a. 1,050,000 b. 950,000 c. 880,000 ; d. 820,000 Solution 45-28 Answer : Balance per book shee $20,000 - Add: Accrued legal fees * : November oe “December mS Total professional fees expense