Problem #7

Preparing the Adjusting Entries at Year-End

Prepare the original and the adjusting entry for Christine Gamba Cargo under each of the following for the year
ending Dec. 31, 2022:

c. Paid P160,000 cash to purchase a delivery van (surplus) on Jan. 1. The van was expected to have a 3-year
life……….

Note: (160,000 – 10,000) / 3 = 50,000

Delivery Van 160,000 Depreciation Expense – Delivery Van 50,000
Cash 160,000 Accumulated Dep. – Delivery Van 50,000

d. Received an P18,000 cash advance for a contract to provide services in the future. The contract required a 1-year
commitment, starting April 1.
Note: (18,000) * (9/12) = 13,500
Cash 18,000 Unearned Service Revenue 13,500
Unearned Service Revenue 18,000 Service Revenue 13,500

e. Purchased P6,400 supplies on account. At year’s end, P750 of supplies remained on hand.
Note: (6,400 – 750) = 5650
Supplies 6,400 Supplies Expense 5,650
A/R 6,400 Supplies 5,650

f. Invested P90,000 cash in a certificate of deposit that paid 4% annual interest. The certificate was acquired on May
1 and carried a 1-year term of maturity.
Note: (90,000)(0.04)(8/12) = 2,400
Certificate of Deposit 90,000 Interest Receivable 2,400
Cash 90,000 Interest Revenue 2,400

g. Paid P78,000 in advance on Sep. 1 for a 1-year lease on office space.

Note: (78,000)(4/12) = 26,000
Prepaid Rent 78,000 Rent Expense 26,000
Cah` 78,000 Prepaid Rent 26,000
On June 30, 2022, the end of the fiscal year, the following information is available to Noel Hungria’s accountants for
making adjusting entries:
a. Mortgage Expense 120,000
Mortgage Payable 120,000
b. Wages Payable 192,000
Cash 192,000
c. NO ENTRY
d. Supplies Expense 41,950
Supplies 41,950
e. To solve for the Insurance Expense, the following equations should be followed:
- Since the beginning balance of 15,300 will expire in April, the whole balance would be already
considered as an expense.
- Since the amount of 29,000 will expire in a year, as the amount is bought on January 1, the following
should be computed: (29,000)(6/12) = 14,500
- Furthermore, the insurance on May 1st has three years of expiration. To solve further, the following
should be computed: [(33,660)/(3)](2/12) = 1,870
- Add: (15,300 + 14,500 + 1,870) = 31,670
Thus, the answer would be:
Insurance Expense 31,670
Prepaid Insurance 31,670
f. Depreciation Expense – Buildings 73,000
Accumulated Depreciation – Bldg. 73,000
Depreciation Expense – Equipment 218,000
Accumulated Depreciation – Eqpt. 218,000
g. Cash 210,000
Unearned Service Revenue 210,000
h. Accounts Receivable 35,000
Service Revenue 35,000