Discussion questions

1. What is accounting and what is its purpose? What is its role in decision making?
- Accounting is the process of keeping and analyzing financial records of a certain
company, business or organization.
- The purpose of accounting is to record all financial transactions of a business or
organization, and organize them in a systematic way.
- Its role in decision making is to provide the owner or the manager information
about the finance of the business.
2. Who are the users of accounting information and what is the relevance of
information to the various types of decisions that they make? Who are the __
financial statements and what are their information needs??
- From my research because I haven't got a hold of the book yet due to me being
introduced to the class late, now then, it is said that the users of accounting
information are the public, the government, the management, employees, the
shareholders, and other creditors.
- They provide insights to the users and allow them to make decisions to help
evaluate the financial strength of the company.
- The users are the external users, such as the investor, the government, the
public, and other creditors. They need information because for example for
investors they need information because they hold the investments of the
company, they need information to release the concern they have on the
company.
3. What are the steps in the accounting process? What is the importance of each
and how is it related to the other steps in the process?
- Documentation, then journaling, then posting, then preparation of trial balance
then compilation of data adjustment then preparation of worksheet, preparation
of adjusting and closing entries, preparation of post-closing of trial balance and
preparation of reversing entries.
- The accounting process is the building block of accounting and is essential for
the preparation of the financial statements. Each are important for preparing
accurate and reliable financial statements.
4. Why are journals called books of original entry?
- They are called books of original entry because it records original transactions. It
is the source of all the accounting records.
5. Distinguish between (a) a general journal and special journals, and (b) general
ledger and subsidiary ledger.
- (a) a general journal is the main journal, it records all the financial transactions of
the company. The special journal is the supplementary journal that is used to
record specific types of transactions that is not recorded in the general journal
- (b) general ledger is the primary ledger, it contains a comprehensive record of all
financial transactions of the company. The subsidiary ledger is the
supplementary ledger, it records financial transactions in a more detailed
manner.
6. Does the trial balance prove the accuracy of accounting work done? Explain the
answer.
- Yes because the trial balance is a crucial tool that helps verify the accuracy of
the financial statements. It is the summary of all accounts of a company, the trial
balance is a balance sheet, if it's not balanced then the work done is not
accurate.
7. What are the common types of adjusting data? Why do we prepare adjusting data
entries?
- There are three major groups and 7 minors. The common types are prepaid
expense, accrued expense, unearned revenue, and accrued revenue. These are
prepared to ensure that the errors are not captured in the regular accounting
record.
8. Why do accountants prepare work sheet even if its preparation is optional?
- Work sheets are used to organize the accounting records, they also provide an
opportunity to review the accuracy of accounting work done, although it is
optional, it is necessary to help ensure the completeness of the work done.
9. Enumerate and discuss the components of a complete set of financial statements.
- There are 5 financial statements, it is balance sheet, statement of comprehensive
income, statement of cash flows, statement of changes in owner’s equity and
notes. Financial statements are prepared after the worksheet is completed, the
data reported in the statement are taken from, the completed worksheet.
10. If reversing entries are made, which adjusting entries would be reversed?
- Those are accrued expense and accrued revenues, prepaid expenses and
deferred expenses.
Exercise 1-4

1. On September 1, 2014, DEF borrowed P2,000,000 cash from the Bank of the
Philippines by issuing a 6% note payable in one year. The interest is able upon
maturity of the note.
-
Cash: 2,000,000
Note: 6%

Interest expense: 90,000

Interest payable: 90,000
2,000,000 x 6% x 9/12 = 90,000

2. On February 1, 2014, DEF paid insurance premium of P72,000 covering a period of

three years beginning on this date.
-
ASSET METHOD EXPENSE METHOD
Insurance: 72,000 Insurance: 72,000
Time: three years Time: three years

Feb. 1 Feb. 1
Prepaid insurance: 72,000 Insurance expense: 72,000
Cash 72,000 Cash 72,000

Dec. 31 Dec. 31
Insurance expense: 22,000 Prepaid insurance: 50,000
Prepaid insurance: 22,000 Cash 50,000
72,000 x 11/36 = 22,000 72,000 x 25/36 = 50,000

3. On December 1, 2014, DEF paid P360,000 representing rental for one year starting
on this date.
-
LIABILITY METHOD INCOME METHOD

Dec. 1 Dec. 1
Cash: 360,000 Cash: 240,000
Unearned Rent: 360,000 Rent income: 240,000

Dec. 31 Dec. 31
Unearned rent: 30,000 Rent income: 30,000
Rent income: 30,000 Unearned rent: 30,000
360,000 x 1/12 = 30,000 360,000 x 1/12 = 30,000
4. DEF reports accounts receivable of P1,500,000 and allowance for uncollectible
accounts of P10,000 (debit balance), P50,000 of the receivables are uncollectible.
-
Accounts receivable: 1,500,000
Allowance for uncollectible accounts: 10,000
Estimated uncollectible accounts: 50,000

Required allowance balance: 50,000

Allowance: 10,000

50,000 - 10,000 = 40,000

Uncollectible expense = 40,000

5. DEF pays all employees every Friday. The total payroll for the five-day workweek
ending January 3, 2015 is P450,000.
-
Cash: 450,000
Payrollt: 450,000
Salary expense: 180,000
Salary payables: 180,000
450,000 x 2/5 = 180,000

6. DEF purchased office equipment on August 1, 2014 amounting to P120,000 On

January 1, 2014, the office equipment account has a balance of P480,000 An
equipment have estimated useful life of 5 years with no residual value.
-
Equipments: 120,000
Balance: 480,000

480k - 120k / 5 x 6/12 = 18,000

Depreciation expense: 18,000
Accumulated depreciation: 18,000

7. Office supplies on hand on January 1, 2014 amounted to P5,000. During the year,
office supplies of P12,500 were purchased. On December 31, 2014, there are
unused supplies of P4,500.

ASSET METHOD EXPENSE METHOD

Jan. 1 Jan. 1
Prepaid Supplies: 12,500 Supply expense: 12,500
Cash: 12,500 Cash: 12,500

Dec. 31 Dec. 31
Supply expense: 2,083 Prepaid Supplies: 1,041
Cash: 2,083 Cash: 1,041
 12,500 x 2/12 = 2,083 12,500 / 12 = 1,041

8. DEF subleases part of its office space for P30.000 per month. On November 1.
2014, received rental payments for six months starting on this date.
-
LIABILITY METHOD INCOME METHOD

Nov. 1 Nov. 1
Cash 30,000 Cash: 30,000
Unearned rent 30,000 Rent income: 30,000

Dec. 31 Dec. 31
Unearned rent: 5,000 Rent income: 27,500
Rent income: 5,000 Unearned rent: 27,500
30,000 x 2/12 = 5,000 30,000 x 11/12 = 27,500

9. Merchandise inventory on January 1 and December 31 amounted to P180,000 and

P220,000, respectively.
-
Income summary: 220,000
Inventory: 180,000
Total: 400,000
Problem 1-1

1. The Prepaid Inirance account shows a total of P48,000 representing the cost of a
year insurance policy dated October 1, 2014

ASSET METHOD EXPENSE METHOD

Oct. 1 Oct. 1
Prepaid Supplies: 48,000 Insurance expense: 48,000
Cash: 48,000 Cash: 48,000

Dec. 31 Dec. 31
Insurance expense:12,000 Prepaid Supplies: 40,000
Cash: 12,000 Cash: 40,000
48,000 x 3/12 = 12,000 48,000 x 10/ 12 = 40,000

2. On November 1, Rent Revenue was credited for P270,00 representing rental for
nine months beginning on that dala.
-
LIABILITY METHOD INCOME METHOD

Nov. 1 Nov. 1
Cash 270,000 Cash: 270,000
Unearned rent 270,000 Rent income: 270,000

Dec. 31 Dec. 31
Unearned rent: 45,000 Rent income: 247,500
Rent income: 45,000 Unearned rent: 247,500
270,000 x 2/12 = 45,000 270,000 x 11/12 = 247,500

3. Supplies of P20,000 were purchased during the year and were debited to the
Supplies Expense account. On December 31, supplies of P4.500 are on hand.
-
ASSET METHOD EXPENSE METHOD
Jan. 1 Jan. 1
Prepaid Supplies: 20,000 Insurance expense: 20,000
Cash: 20,000 Cash: 20,000

Dec. 31 Dec. 31
Insurance expense:1,700 Prepaid Supplies: 1,700
Cash: 1,700 Cash: 1,700
20,000 x 1/12 = 1,700 48,000 / 12 = 1,700
4. The company acquired equipment on April 1, costing P350,000. The assets have
estimated useful life of five years without any residual value.
-
Epuipments: 350,000

350,000 / 5 = 70,000
Depreciation expense: 70,000
Accumulated depreciation: 70,000

5. Accounts receivable balance on December 31 amounted to P1,500,000 of the

amount, P8,000 are estimated to become uncollectible.
-
Accounts receivable: 1,500,000
Estimated uncollectible accounts: 8,000

Required allowance balance: 8,000

8,000 - 1,500,000 = 1,492,000

Uncollectible expense = 1,492,000

6. The notes receivable account has a balance of P150,000 representing a 90-day,

12% note received on December 1. The interest on the note is collectible upon
maturity.
-
Balance: 150,000
Note: 12%

Interest expense: 1,500

Interest payable: 1,500
150,000 x 12% x 30/360 = 1,500

7. Unpaid salaries as of December 31 amounted to P155,000.

-
Salary receivable:
Salary income:
155.000 x 1/12 = 12,917

8. Merchandise inventory on December 31 is P122,000.

-
Inventory summary: 122,000
Inventory: 122,000
Problem 1-5 (Adjusting Entries)

The XYZ Realty operates with an annual accounting period that ends on December 31.
The trial balance of the company at the end of the current year 2014 follows:

Cash 1,300,000
Accounts Receivable 550,000
Prepaid Insurance 50,000
Office Equipment 750,000
Accumulated Depreciation - Office 150,000
Equipment 1,300,000
Automobile 260,000
Accumulated Depreciation- Automobile 110,000
Accounts Payable 120,000
Unearned Management Fees 840,000
Primo, Capital 350,000
Primo, Drawing 3,600,000
Management Fees Earned 450,000
Office Salaries Expense 100,000
Advertising Expense 150,000
Rent Expense 30,000
Telephone Expense 50,000
Utility Expense 5,080,000 5,080,000

Data for adjustments:

1. Expired insurance during the year amounted to P30,000.

ASSET METHOD EXPENSE METHOD

Insurance expense: 2,500 Prepaid Supplies: 2,500

Cash: 2,500 Cash: 2,500
30,000 x 1/12 = 2,500 30,000 / 12 = 2,500

2. Depreciation expense for the year: office equipment - P75,000; automobile

P260,000.

Office equipmemt Automobile

Depreciation expense: 30,000 Depreciation expense: 14,000
Accumulated depreciation: 30,000 Accumulated depreciation: 14,000
150,000 - 75,000 x 12/30 = 30,000 110,000 - 75,000 x 12/30 = 14,000
3. The balance of unearned management fees represents advance payments for six
months starting September 1, 2014.

LIABILITY METHOD INCOME METHOD

Sept. 1 Sept. 1
Unearned management fees: 280,000 Income: 560,000
Income fee: 280,000 Unearned income: 560,000
840,000 x 4/12 = 280,000 840,000 x 8/12 = 560,000

4. Advertising expense represents a five-month advertising beginning October 1,

2014.

150,000 x 5 x 3/12 = 20,830

Expense: 20,830