EXERCISES ON ACCOUNTING CYCLE

1.         The following data were gathered in analyzing the accounts of

Laurence Company at December 31, 2020, the end of its first year of
operations.

a.            Supplies of P25,000 were purchased during the year and were

debited to Supplies account. On December 31, supplies of P8,500 are
on hand.

b.            The Prepaid Insurance account shows a balance of P24,000,

representing the cost of a two-year insurance policy dated May 1,
2020.

c.            On November 1, 2020, the company subleased a portion of its

space and received P27,000, representing three-months’ rent
beginning on that date. The amount was credited to Rent Revenue.

d.            The company purchased office equipment on March 1, 2020

costing P400,000. The assets have estimated useful life of 10 years
and salvage value of P40,000.

e.            It is estimated that 2% of the accounts receivable at the end of

the year is uncollectible. Accounts Receivable balance at December 31,
2020 is P450,000.

 
f.             On December 1, the company issued a 90-day, 12% note for
P200,000. The interest on the note is payable on maturity (Use a 360-
day year).

g.            Merchandise Inventory at December 31, 2020 amounted to

P480,000. At the end of the year, selected account balances were as
follows: Purchases – P900,000; Freight-in – P20,000; Purchase
Returns and Allowances – P25,000.

Required: For each letter transaction, prepare

a.            Adjusting entries at December 31, 2020.

b.            Closing entries at December 31, 2020

c.            Appropriate reversing entries at January 1, 2021 (If there is) If

none, write NA.

  ADJUSTING ENTRIES CLOSING ENTRIES REVERSING ENTRIES

a.  Supplies Expense –  Income Summary – N/A
16500 16500

Supplies - 16500 Supplies Expense -

16500
 

 
b.  Insurance Expense –  Income Summary – N/A
17000 17000
 Prepaid Insurance - Insurance Expense -
17000 17000

 
c.  Rent Revenue – 9000 Rent Revenue – 18000 Unearned Rent Revenue
– 9000
Unearned Rent Income Summary -
Revenue - 9000 18000 Rent Revenue - 9000

 
d.  Depreciation Expense –  Income Summary – NA
27000 27000

Accumulated Depreciation Expense -

Depreciation - 27000 27000

 
e.  Uncollectible Accounts  Income Summary – NA
 Expense – 9000 9000

Accounts Receivable - Uncollectible Accounts

9000 Expense - 9000

 
f.  Interest Expense –  Income Summary – NA
30000 30000

Interest Payable - Interest Expense - 30000

30000

 
g.    

 
     
 
 

2.    The trial balance of Wayland Company shown below does not

balance.   Your review of the ledger reveals the following:  

(a) Each account had a normal balance. 

(b)  The debit footings in Prepaid Insurance, Accounts Payable, and

Property Tax Expense were each understated by P1,000. 

(c)  A transposition error was made in Accounts Receivable and

Service Revenue; the correct balances for Accounts Receivable and
Service Revenue are P27,500 and P66,900, respectively. 

(d)   A debit posting to Advertising Expense of P3,000 was omitted. 

(e)  A P15,000 cash drawing by the owner was debited to Way Land,
Capital and credited to Cash. 

 
                                                             Trial Balance

                                                        April 30, 2020

                                                                    Debit               Credit

                        Cash                                                  48,000

                        Accounts Receivable                      25,700

                        Prepaid Insurance                             7,000

                        Equipment                                                                80,000

                        Accounts Payable                                                    45,000

                        Property Tax Payable                       5,600

                        Way Land, Capital                                                112,000

                        Service Revenue                             69,600

                        Salaries Expense                             42,000

                        Advertising Expense                       11,000

                        Property Tax Expense                                              8,000

                                                                                 208,900          245,000

 
                        Prepare the correct trial balance.at April 30,2020.

  DEBIT CREDIT
Cash 48000 
Accounts Receivable 27500 
Prepaid Insurance 8000 
Equipment 80000 
Accounts Payable   44000
Property Tax Payable   5600
Way Land, Capital   127000
Way Land, Drawing  15000
Service Revenue   66900
Salaries Expense 42000 
Advertising Expense 14000 
Property Tax Expense 9000 
   
TOTAL 243500 243500