LET’S ANALYZE

Activity 14. Identifying the terms needed in the study of adjusting entries is just a guide for you
to correctly prepare the required adjusting entries. In this activity, you are required to correctly
journalized the adjusting entry. For each situation (transaction) answer the questions.

CASE 1

On Nov. 15, 2019, Jay Cesar borrowed money from Mayaman Bank for P400,000 to finance an
-on-going project that he ventured into. He issued a 150 note dated Nov. 15, 2019. The note is
10% interest bearing note which will be paid together with the principal upon maturity. (Use
ordinay interest in computing interest)

1. When is the maturity date of the note? _____________________________________.

2. What is the maturity value of the note? ____________________________________.
3. How much is the accrued Interest?________________________________________.
4. How much interest payable to be recognized on Dec. 31, 2019? ________________.
5. How much interest Expense to reported in the Income Statement on Dec. 31, 2019?
6. Prepare the adjusting entry on Dec. 31, 2019. _____________________________.
7. Prepare the journal entry to be made on maturity date.______________________.

CASE 2

Magic Trading decided to invest the excess cash in a more profitable instrument to earn an
additional income for the company. A time deposit for P2,500,000 was purchased on Aug. 1,
2019 which will mature on April 1, 2020. The time deposit has an annual interest rate of 5%
which can be withdrawn by the company on a monthly basis, every 1st day of the following
month. So the interest for August can be drawn on Sept. 1, 2019 and so on.

1. How much interest income will be recognized for the year 2019? _________________.
2. How much of the interest income is actually collected for the year 2019? ___________.
3. Is there and accrued interest income? If yes, how much and why? __________. If your
answer is No, why?
4. How much is the amount of Interest Receivable will be recognized on Dec. 31, 2019?
5. On April 1, 2020, how much cash will Magic Trading receive from the Bank for the Time
deposit?
6. What are the entries to record the following?
a. August 1, 2019 when the Time Deposit was placed.
b. April 1, 2020 when the Time Deposit mature.

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 CASE 3

Malaya Laundry is engaged in self-service laundry for quite a long period of time. The selected
transactions below are some business transactions that transpired during 2019.

a. Feb. 1, 2019 Bought Laundry supplies in the amount of P120,000. At the end of the year
Dec. 31, 2019, physical inventory of Laundry Supplies revealed a balance of P22,800.
b. May 1, 2019 renewed his contract with the owner of the building for another year and paid
a one-year rent for P144,000.
c. Oct. 1, 2019 entered into a one-year contract with a hospital to do the laundry of all hospital
uniforms of doctors and nurses for a monthly rate of P8,000 and received cash for one year
advance payment.

Instruction:

1. Let us assume that Malaya Laundry uses the asset approach in recording prepayments and
liability in recording pre-collected income. What is the original entry made and the adjusting
entry required at the end of Dec. 31, 2019?
2. Let us assume that Malaya Laundry uses the expense approach in recording prepayments
and income in recording pre-collected income. What is the original entry made and the
adjusting entry required at the end of Dec. 31, 2019?
3. If the accountant of Malaya has to reverse the adjusting entry, which entry or set of entries
under assumption 1 and 2 would have been reversed? and Why?
4. Use the provided format for your answer.

SEE FORMAT BELOW:

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