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PO Chapet lang sabormation popuring its partearend adiu Dyd entered in mag on Auge Athand is P200,000 is paid the rentals 1. Adjusting entries are usually recorded at the beginning of 2. Adjusting entries are optional. An entity can prepare financial 3. All adjusting entries involve at least one balance sheet account 4. All adjusting entries affect the profit or loss for the period for an expense account. Entity A must have used the asser involved a debit to an income account and a credit to X liability (unearned income) account. Entity A must have used 264 PROBLEMS PROBLEM 1: TRUE OR FALSE each reporting period. statements without preparing first the adjusting entries. and one income statement account (or statement of comprehensive income account). comprehensive income for the period). 5. In accounting, the phrase "to accrue" means to postpone the recognition of an income or expense. Use the following information for the next two questions: Your business is renting a commercial space. The monthly rent is P100. At the start of Month 1, you paid three-month advanced rent of P300. 6. If you prepare financial statements at the end of Month 1, your balance sheet will show a "Prepaid rent" of P100. 7. If you prepare financial statements at the end of Month 1, your income statement will show a "Rent expense" of P100. 8. The year-end adjusting entry for prepayments or advanced collections is the opposite of the method used on initial recording. For example, if you have used the income method on initial recording your year-end adjusting entry would be to recognize a liability (i.e., the unearned portion). 9. One of the adjusting entries that Entity A has made at year end involved a debit to a prepaid asset account and a credit t by A received a da customer on meest on the note a tin A acquired 12,000. The machir by A has total bomber 31, 20x1. albo of collec Shpk mixed acco om one method' of initial recording of prepayments of expenses. 10. One of the adjusting entries that Entity B has made at t year-end of items of income collec ing of nancial ccount ent of God (or advertising ne the 20x1. rent is ed rent 1. your PROBLEM 2: FOR CLASSROOM DISCUSSION Accruals, depreciation and bad debts Use the following information for the next four questions: Entity A is preparing its December 31, 20x1 financial statements. Provide the year-end adjusting entries for the following | Entity A entered into a 1-year contract for a billboard months of May 1, 20x1 to April 30, 20x2. a. Provide the journal entry to record the collection on May 1, 20x1 under each of the following methods: ng of advanced on August 1, 20x1. The monthly rent for the billboard is P200,000, payable at the start of each month. Entity A has paid the rentals for the months of August to November 2. Entity A received a 10%, P180,000, one-year, note receivable from a customer on October 31, 20x1. Both the principal and interest on the note are due on November 1, 20x2. 3. Entity A acquired a machine on November 30, 20x1 for P420,000. The machine has an estimated useful life of 8 years. 4. Entity A has total accounts receivable of P890,000 as of December 31, 20x1. Of that amount, P45,000 were estimated to be doubtful of collection. Splitting of mixed accounts Requirements: i. 1, your vanced initial method ould be On May 1, 20x1, Entity B received one-year advanced rent of P480,000 from one of its tenants. The advanced rent covers the at year redit to 'asset s. ear-end it to a ve used Liability method b. Provide the adjusting entries on December 31, 20x1 under 6. On August 1, 20x1, Entity C paid one-year insurance of 266 of ii. Income method th each of the methods listed above. Y 5. P360,000 L c Requirements: a. Provide the journal entry to record the prepayment on August 1, 20x1 under each of the following methods: i. Asset method ii. Expense method b. Provide the adjusting entries on December 31, 20xl under each of the methods listed above. PROBLEM 3: ADJUSTING ENTRIES Your business uses a calendar year accounting period. The following were among your transactions during the year: 1. Your business issued a 14%, P300,000, one-year, note payable on April 1, 20x1. Both the principal and interest on the note are due at maturity date. What is the adjusting entry on December 31, 20x1? 2. Your business received billing of P32,000 on December 29, 20x1 for utilities used in December 20x1. Your business paid the bill on January 4, 20x2. What is the adjusting entry on December 31, 20x1? "R bg 3. Your business is renting a space for a monthly rental of 922,000. As of December 31, 20x1, your business has not yet paid the December rent. What is the adjusting entry on December 31, 20x1? oint Rent payable") 4. Your business is sub-leasing (renting out) a portion of the space referred to in #3 above to a tenant for a monthly rental 20x1 und Suranice of P4,000. As of December 31, 20x1, the tenant has not yet paid the rent for the months of November and December. What is Your business has total accounts receivable of 400,000 as of December 31, 20x1. Of that amount, 5% is doubtful of collection and should be expensed. What is the adjusting entry 6 Your business acquired a building on May 1, 20x1 for a total the adjusting entry on December 31, 20x1? veux Tone income, Vernd December 31, 20x12 cost of P15,000,000. The building has an estimated useful life of 20 years. Your business records depreciation only at year- end. What is the adjusting entry on December 31, 20x1? (Hint: Depreciation normally starts from the acquisition date of an asset) ayment on hods: on 20x1 under eriod. The 7. Your business collected royalty income of P720,000 in advance on November 1, 20x1. As of December 31, 20x1, P560,000 of the advanced collection is eamed. T: te payable he note are December Requirements: a. Provide the journal entry to record the collection on November 1, 20x1 under each of the following methods: i. Liability method ii. Income method (Hints "Royalty Income': Uneamed income b. Provide the adjusting entries on December 31, 20x1 under each of the methods listed above. cember 29 siness paid 3 entry on "Royalty income is the income you earn if you have invented something, wrote a book, composed a song, made a YouTube video and have it copyrighted, or other artistic or literary work, and you let another party use/publish/exploit your work in exchange for money. It is like renting out your work to another party. 8. Your business paid one-year fire insurance of P360,000 on rental of has not yer entry as October 31, 20x1. Requirements: ion of the , M Muy 6 You esti colk i. ii. Asset method Expense method adju each of the methods listed above. 7 You busi of y 1,21 Regi a. a. Provide the journal entry to record the prepayment October 31, 20x1 under each of the following methods b. Provide the adjusting entries on December 31, 20x1 und Your business uses a calendar year accounting period. The P120,000. On December 31, 20x1, the rent for the months of 5. On February 1, 20x1, your business acquired computer equipment for P360,000. You expect to use the computer o the next 3 years. What is the adjusting entry on December 31 268 PROBLEM 4: ADJUSTING ENTRIES following were among your transactions during the year: 1. Your business received a 14%, P400,000, one-year, note from: customer on June 1, 20x1. Both the principal and interest the note are due at maturity date. What is the adjusting enth on December 31, 20x1? (Round-off amounts to two decimal places) 2. Your employees earned P46,000 compensation during the las week of December 20x1. The salaries were paid on the firs week of January 20x2. What is the adjusting entry December 31, 20x1? 3. Your business received its electricity bill for the period amounting to P16,000. What is the entry to record the receipt of the bill prior to its payment? 4. Your business is renting a space. The monthly rentals November and December 20xl were not yet paid. What is ** adjusting entry? b. & You Sep Regi a. PROBL 1. Enti rate 20x1 to take up depreciation expense? on to Dec whi lowing prepeat Adjusting Entries 269 cember 31, b. ounting period ing the year one-year, ne bi cipal and intens is the adjusting Your business has accounts receivable of P300,000. You estimated that out of that amount, 10% is doubtful of collection and needs to be charged to expense. What is the adjusting entry to record the doubtful accounts? 7. Your business is renting out properties. On June 1, 20x1, your business receives one-year advanced rent of P360,000 from one of your tenants. The advanced rent covers the months of June 1,20x1 to May 31, 20x2. Requirements: a. Provide the journal entry to record the collection on June 1, 20x1 under each of the following methods. i. Liability method ii. Income method b. Provide the adjusting entries on December 31, 20x1 under each of the methods listed above. sation during the 8. Your business pays one-year insurance of P360,000 on ere paid on the September 1, 20x1. adjusting entry Requirements: a. Provide the journal entry to record the prepayment on September 1, 20x1 under each of the following methods: i. Asset method ii. Expense method b. Provide the adjusting entries on December 31, 20x1 under each of the methods listed above. two decimal place bill for the po to record the no e monthly nt for the me vet paid. We PROBLEM 5: ADJUSTING ENTRIES 1. Entity A has 100 employees, each earning an average daily rate of P600. Entity A's last salary payment date in 20x1 was on December 27, 20x1. However, 25 employees were required to render overtime work during the last three days of December 20x1. The compensation for the overtime work, which was considered "double-time pay," was paid during acquired an e the computer try on De NOSZ December 31, 20x1? . the the first week of January 20x2. What is the adjusting entry on 2.Entity A received a 10%, P1,000,000, one-year, note from customer on August 1, 20x1. Both the principal and interest on the note are due at maturity date. What is the adjusting entry May 1, 20x1. Entity A uses a calendar year period. The 270 on December 31, 20x1? (Round-off amounts to two decimal places) 3. Entity A issued a 12%, P350,000, one-year, note payable principal and interest on the note are due on May 1, 2012 What is the adjusting entry on December 31, 20x1? 4. Entity A received billing for mobile charges and internet fees for the month of December 20xi totalling P13,000. Prior to payment, what is the entry to record the receipt of the billing? 00 ad/ 1 5. On March 31, 20x1, Entity A acquires a pickup truck for P1,600,000. The truck has an estimated useful life of 5 years. What is the adjusting entry on December 31, 20x1 to take up depreciation expense? C 6. Entity A's unadjusted trial balance as of December 31, 201 shows "Prepaid supplies" of P34,000. The year-end physical count of supplies revealed unused supplies amounting to P8,000. What is the adjusting entry? 7. Entity A's unadjusted trial balance as of December 31, 2011 shows "Supplies expense" of P34,000. The year-end physical count of supplies revealed unused supplies amounting to P8,000. What is the adjusting entry? 8. Entity A's unadjusted trial balance as of December 31, 20x1 shows accounts receivable of P340,000 and no allowance for bad debts. Entity A estimates that 3% of the accounts are doubtful of collection. What is the adjusting entry