Spiceland Corporation is in the process of obtaining a loan at City Bank. The bank has requested audited financial statements. Spiceland’s financial statements have never been audited before. It has prepared the following comparative financial statements for the years ended December 31, 2023, and 2022.

Spiceland Corporation Comparative Statement of Financial Position For the Years Ended December 31, 2023 and 2022
Current assets:	2023	2022
Cash and cash equivalents	1,205,000	800,000
Accounts receivable	1,960,000	1,480,000
Allowance for bad debts	(185,000)	(90,000)
Inventory	1,035,000	1,010,000
Total current assets	4,015,000	3,200,000
Noncurrent assets:
Property, plant and equipment	835,000	847,500
Accumulated depreciation	(608,000)	(532,000)
Total noncurrent assets	227,000	315,500
Total assets	4,242,000	3,200,000
Liabilities:
Accounts payable	607,000	980,500
Shareholders equity:
Ordinary, P20 par; 150,000 shares authorized; 65,000 shares issued and outstanding	1,300,000	1,300,000
Retained earnings	2,335,000	1,235,000
Total shareholders’ equity	3,635,000	2,535,000
Total liabilities and shareholders’ equity	4,242,000	3,515,500
Spiceland Corporation Comparative Income Statements For the Years Ended December 31, 2023 and 2022
Sales	5,000,000	4,500,000
Cost of goods sold	2,150,000	1,975,000
Gross income	2,850,000	2,525,000
Operating expenses:
Selling expenses	1,150,000	1,025,000
Administrative expense	600,000	525,000
Total operating expenses	1,750,000	1,550,000
Net income	1,100,000	975,000

 

The 2023 audit revealed the following facts:

• On January 5, 2022, Spiceland Corporation had charged a 5-years insurance premium to expense. The premium totaled P31,000.

The amount of loss due to bad debts had steadily decreased over the last 2 years. Spiceland Corporation has decided to reduce the amount of bad debt expense from 2% to 1.5% of sales, beginning with 2023. (a charge of 2% has already been made for 2023.)

Spiceland Corporation uses the periodic inventory system. The following are the inventory errors for the last 2 years:

2022 –  ending inventory overstated by P75,500.

2023 – ending inventory overstated by P99,000.

Equipment costing P150,000 was acquired on January 3, 2022. The purchase was recorded by a charge to operating expense. The equipment has a useful life of 10 years and a residual value of P25,000. Spiceland Corporation uses the straight-line method in depreciating its assets.

Assume that the books for 2023 have not yet been closed. Ignore tax implications.

Questions: 

 

The December 31, 2023, adjusting entry to correct the expensing of insurance premium paid is Note: Kindly input the Capital Letter of correct answer in the blank (e.g. A) Prepaid insurance 18,600 Prepaid 18,600 expense . Insurance expense 6,200 Retained Retained earnings 18,600 earnings 24,800 Prepaid Insurance expense insurance 6,200 . 18,600 D. Retained Retained earnings 6,200 earnings 18,000