CHAPTER 2

REVIEW OF THE ACCOUNTING PROCESS

Problems

2-1 (Laurence Company)

a. Adjusting entries at December 31, 2007:

a. Supplies Expense 16,500

Supplies 16,500
25,000-8,500

b. Insurance Expense 8,000

Prepaid Insurance 8,000
24,000 x 8/24

c. Rent Revenue 9,000

Unearned Rent Revenue 9,000
27,000/3

d. Depreciation Expense 30,000

Accum. Depreciation 30,000
(360,000/10) x 10/12

e. Uncollectible Accounts Expense 9,000

Allowance for Uncollectible Accounts 9,000
2% x 450,000

f. Interest Expense 2,000

Interest Payable 2,000
200,000 x .12 x 30/360

g. Merchandise Inventory 480,000

Purchase Returns and Allowances 25,000
Cost of Goods Sold 415,000
Purchases 900,000
Freight-in 20,000

b. Reversing entries at January 1, 2008

c. Unearned Rent Revenue 9,000
Rent Revenue 9,000

f. Interest Payable 2,000

Interest Expense 2,000

2-2 (Matthew Company)

Adjusting entries at December 31, 2007:
a. Salary Expense 8,400
Salaries Payable 8,400
21,000 x 2/5

b. Depreciation Expense 35,000

Accumulated Depreciation 35,000

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 420,000 / 12

c. Interest Receivable 1,800

Interest Revenue 1,800
60,000 x .12 x 3/12
d. Supplies Expense 5,250
Store Supplies 1,280
Office Supplies 3,970

e. Bad Debts Expense 32,500

Allowance for Bad Debts 32,500
5% x 650,000

f. Insurance Expense 5,280

Prepaid Insurance 5,280

g. Prepaid Travel Expense (or Prepaid Expense) 3,100

Travel Expense 3,100

h. Prepaid Rent 6,000

Rent Expense 6,000
18,000 x 2/6

i. Income Tax Expense 446,765

Income Tax Payable 446,765
Reported net income 1,352,000
Adjustments: (a) ( 8,400)
(b) ( 35,000)
(c) 1,800
(d) ( 5,250)
(e) ( 32,500)
(f) ( 5,280)
(g) 3,100
(h) 6,000
Correct net income 1,276,470 x 35% =446,765

2-3 (De Asis Corporation)

a. Adjusting entries at December 31, 2007:
a. Doubtful Accounts Expense 1,700
Allowance for Doubtful Accounts 1,700

b. Insurance Expense 1,250

Prepaid Insurance 1,250

c. Interest Receivable 250

Interest Revenue 250

d. Prepaid Rent 1,550

Rent Expense 1,550

e. Depreciation Expense 25,000

Accumulated Depreciation 25,000

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 f. Salary Expense 8,000
Salaries Payable 8,000

g. Interest Expense 200

Interest Payable 200

h. Rent Revenue 20,000

Unearned Rent Revenue 20,000

b. Closing entries (partial)

a. Rent Revenue 80,000
Interest Revenue 3,850
Income Summary 83,850

b. Income Summary 864,700

Rent Expense 7,450
Salaries Expense 828,000
Interest Expense 1,300
Doubtful Accounts Expense 1,700
Depreciation Expense 25,000
Insurance Expense 1,250

c. Reversing entries at January 1, 2008

c. Interest Revenue 250
Interest Receivable 250

d. Rent Expense 1,550

Prepaid Rent 1,550

f. Salaries Payable 8,000

Salary Expense 8,000

g. Interest Payable 200

Interest Expense 200

h. Unearned Rent Revenue 20,000

Rent Revenue 20,000

2-4 (JPIA Company)

Amount of Amount that would appear
Adjustment in Balance Sheet
a. Salaries Payable 16,800 16,800
b. Interest Payable 6,750 6,750
c. Advertising Payable 60,000 60,000
d. Accumulated Depreciation 20,000 30,000
e. Office Supplies 58,000 28,000
f. Unearned Plumbing Revenue 108,000 36,000
g. Prepaid Insurance 20,000 40,000

2-5
a. Adjusting entries at December 31, 2007:

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 a. Trading Securities 13,000
Unrealized Gain on Trading Securities 13,000

b. Operating Expenses 15,200

Prepaid Expenses 15,200
Req. bal in prepaid expenses:
144,000 x 4/12 48,000
Office supplies on hand 39,000
Store supplies on hand 23,000
Total 110,000
Reported amount 125,200
Req. decrease in PE 15,200

c. Operating Expenses 156,000

Accumulated Depreciation 156,000
d. No entry required. The required balance in
accrued interest is P22,500, computed as
200,000 x 15% x 9/12. This amount is already
included in the Trade and Other Payables
balance.

f. Rent Revenue 62,000

Unearned Rent Revenue 62,000
Required balance in unearned rent
192,000 x 9/12 142,000
Reported balance 80,000
Required increase 62,000

2-6
a. P1,200,000 Same as given total. The transaction will increase office
supplies and decrease cash whose balances are both reflected
in total debit amount.

b. P2,220,000 Accounts Payable 245,000

Accumulated Depreciation (810,000+27,000)
837,000
RMP, Capital (1,100,000+410,000-15,000-
27,000-190,000) 1,138,000
TOTAL 2,220,000

c. P698,000 Accounts Payable 157,000

C. Manor, Capital 200,000
Interest Payable 5,000
Accumulated Depreciation 20,000
Notes Payable 220,000
Salaries Payable 96,000
TOTAL 698,000

d. P744,000 729,000 + 15,000 = 744,000; The use of P12,000 office

supplies does not affect the trial balance total.

e. P243,500 Total debits is P243,500 consisting of:

Cash – P48,000; Accounts Receivable – P27,500; Prepaid

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 Insurance – P8,000; Equipment – P80,000; Salaries Expense –
P42,000; Advertising Expense – P14,000; Property Tax Expense
– P9,000; and Way Land, Drawing – P15,000.

Total credits is P243,500 consisting of:

Accounts Payable – P44,000; Property Tax Payable – P5,600;
Service Revenue – P66,900; and Way Land, Capital –
P127,000.

MULTIPLE CHOICE QUESTIONS

Theory
MC1 C MC11 C
MC2 D MC12 B
MC3 D MC13 D
MC4 A MC14 A
MC5 B MC15 B
MC6 C MC16 B
MC7 C MC17 C
MC8 B MC18 D
MC9 D MC19 B
MC10 C MC20 A

Problems
MC21 B
MC22 B 16,000 + 29,000 – 21,000 = 24,000
MC23 A
MC24 D 122,500 + 437,500 – 105,000 = 455,000
MC25 C 990,000 + 50,000 – 60,000 = 980,000
MC26 A 400,000 + (15% x 3.0M) = 850,000
MC27 C 36,000 x 34/36 = 34,000; 44,100 – 33,100 = 11,000
MC28 D 60,000 – 17,000 = 43,000
MC29 C 12,350 + 1,850 – 5,300 = 8,900
MC30 A (14,400 x 5/12) + 9,600 + (11,200 x 12/16) = 24,000
MC31 C 24,900 + 4,500 – 3,600 = 25,800
MC32 A P0. The post-closing trial balance includes real accounts only.
MC33 A 36,000 x 4/12 = 12,000
MC34 C 30,000 + 45,000 + 20,000 = 95,000
MC35 B 144,000 – 95,000 = 49,000
MC36 A 1,337,100 + 274,000 – 120,000 + 67,000 = 1,558,100
or 1,684,000 – 274,000 + 120,000 + 80,100 – 52,000 = 1,558,100
MC37 B (7,200 X 21/24) + (3,600 X 2/6) + (24,000 X 27/36) = 25,500 – 28,200 =
2,700 Decrease

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MC38 A 45,000 x 10% x 30/360 = 375
MC39 B (27,000 x 3/12) + (22,200 x 6/12) + (28,800 x 9/12) + (10,700 x 12/12) =
60,150 – 56,250 = 3,900 Increase
MC40 B 11,250 x 2/4 = 4,500