Professional Documents
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Subtitle
Adjusting Entries Answer key
1.___________, income not yet earned; but collected in advance. Unearned Revenue
2.____________, Unused supplies; to be used in the next accounting period. Supplies
3.____________, rent Income collected; but not earned yet. Unearned rent income
4.____________, rent Income not yet collected; but already earned. Rent receivable
5.____________, an expense incurred; but not yet paid or recorded. Accrued Expense
6.____________, Income earned; but not yet collected. Receivable
7.____________, an expense not yet incurred; but already paid in advance. Prepaid
expense
12. ____________, refers to entries required at the end of the period to bring the accounts up to
date to ensure proper matching of income and expenses. Adjusting Entries
13. ____________, the difference between the cost and accumulated depreciation account of the
related property and equipment account. Net Book Value/ Carrying Value/ Carrying Amount
14. ____________, the difference between Accounts receivable and allowance for doubtful
account is called. Net Realizable Value
15. ____________, it is used to classify and summarize transactions and to prepare data for
financial statements. This is where the increase and decrease of an account is presented. General
Ledger
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Activity 12
•_____________ a. Failure to recognize Interest income earned but not yet collected. Understated Total
Assets
•_____________ e. Taxes incurred but not paid was not recorded. No effect on assets
•_____________ f. The earned portion of unearned revenue was not recognized. No effect on Total Assets
Activity 13
• Deferrals: Adjusting entries
Approach Used Account debited Account credited
Asset Approach Expense Prepaid expense
Expense Approach Prepaid Exp Expense
Unearned Revenues:
Liability App. Unearned income Income
Income approach Income Unearned inc.
Accruals:
Expense Expense Accrued expense
Income Accrued income Income
Activity 14 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? April 13, 2020
Nov. 16-30 15
Dec 31
Jan 31
Feb 29
Mar 31
Apr 13
I=prt(400,000 x10%x150/360) = 16,667 interest for the whole term (150 days)
5. How much interest Expense to reported in the Income Statement on Dec. 31, 2019? 5,111
OR if no R/E:
interest payable 5,111
interest expense 11,556
note payable 400,000
cash 416,667
Activity 14 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? 2,500,000x.05x5/12 = 52,083
2. How much of the interest income is actually collected for the year 2019? 2,500,00 x .05 x 4/12 = 41,667.
3. Is there and accrued interest income? If yes, how much and why? The uncollected income for December is
accrued 2,500,000 x .05 x 1/12 = 10,417
Activity 14 case 2
4. How much is the amount of Interest Receivable will be recognized on Dec. 31, 2019? 10,
417
5. On April 1, 2020, how much cash will Magic Trading receive from the Bank for the Time
deposit? March 1 to April 1 interest plus principal= 10,417 + 2,500,000= 2,510,417
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?
Original entry Adjusting entry ( these are to be reversed on Jan. 1 of next period)
Case 2 assumption which used the expense approach and income approach in its original entry
should be reversed. Because the adjusting entry increased an asset and/or liability.
REVERSING ENTRIES:
Laundry supplies expense 22,800
Laundry supplies 22,800
•Additional Information:
a. A review of the insurance policies showed that P4,000 had expired at the end of the period.
e. On Dec. 1, the entity signed a contract with an event organizer in Davao city which is effective immediately, to be
the official hair dresser and make-up artist in all events sponsored by the organizer for P50,000. The organizer
paid for five months service in advance.
f. Salaries are paid on Saturdays. The weekly payroll is P15,000. Assume that Dec. 31 falls on a Thursday and the
entity has a six-day pay week.
• Take note of the accounting period, it ends on Dec. 31, 2019 (as reflected in the trial balance).
a. Insurance expense 4,000
Prepaid insurance 4,000
b. Parlor Supplies expense 66,650
Parlor Supplies 66,650
c. Depreciation 25,000
Accumulated Depreciation 25,000
D. Interest expense 8,000
Interest Payable 8,000
E. Unearned revenue 10,000
Service Income 10,000
F. Salaries Expense 10,000
Salaries payable 10,000
Account titles Debit Credit Debit Credit Debit Credit