ASSIGNMENT for BSBA - ADJUSTING ENTRIES

A. Prepare the adjusting entry for Christine Gamba Cargo under each
of the following for the year ending December 31, 2019:

a. Paid P24,000 for a 1-year fire insurance policy to commence on Sept.

1. The amount of premium was debited to Prepaid Insurance.

 24,000 / 12 mos. = 2,000 / mo.

Sep. 1, 2019 – Dec. 31, 2019 = 4 months x 2,000 = 8,000 expense portion
Jan. 1, 2020 – Sep. 1, 2020 = 8 month x 2,000 = 16,000 asset portion

COMPARATIVE  JOURNAL ENTRIES

EXPENSE METHOD ASSET METHOD 
 (Nominal Approach )   (Real Approach)

UPON Insurance Expense  24,000 Prepaid Insurance    24,000

PAYMENT      Cash                                   Cash                           24,000
Sep. 1, 2019 24,000        To record insurance
      To record insurance premium paid.
       premium paid.

Adjusting Prepaid Insurance  16,000 Insurance Expense    8,000

Entry      Insurance  Expense    16,000        Prepaid Insurance        8,000
Dec.31, 2019          To record the unexpired         To record the expired
         ( asset) portion of           ( expense) portion of 
         insurance premium.          insurance premium.

b. Borrowed P100,000 by issuing a 1-year note with 7% annual interest

to Century Savings Bank on Oct. 1, 2019.
I = ( 100,000 ) (0.07) = 7000/12 = 583.33/month
583.33 x 3 = 1749.99
Adjusting Entry
Dec. 31, 2019 Interest Expense P 1,750
Interest Payable P 1,750
To record annual interest of notes payable.

c. Paid P160,000 cash to purchase a delivery van (surplus) on Jan. 1.

The van was expected to have a 3-year life and a P10,000 salvage
value. Depreciation is computed on a straight-line basis.

Depreciation expense = 160,000 – 10,000 / 3 years = 50,000

 Adjusting entry:
Dec. 31, 2019 Depreciation Expense 50,000
Accumulated Depreciation-Van
Equipment 50,000
To record depreciation expense for
2019.

Delivery Equipment 160,000

Less: Accumulated Depreciation 50,000
NET BOOK VALUE – Dec. 31, 20A 110,000

d. Received an P18,000 cash advance for a contract to provide services

in the future. The contract required a 1-year commitment, starting
April 1.

 P  18,000  / 12 Months = P 1,500 / month

Apr. 1, 2019 – Dec. 31, 2019= 9 months x P 1,500 / month = P13,000 earned
portion
Jan. 1, 2020 – Apr. 1, 2020 = 3 months x P 1,500 / month =  P 4,500 unearned
Portion

COMPARATIVE JOURNAL ENTRIES

Income Method Liability Method

Upon Cash                     18,000 Cash                           18,000

collection      Service Income           18,000    Unearned Service Income 18,000
Aug. 1,         To record service income             To record service income 
2019          collected in advance.             collected in advance.

Adjusting Service Income         4,500 Unearned Service Income 13,000

Entry       Unearned Service Income      4,500        Service Income                  13,000
Dec. 31,      To record the unearned            To record the earned portion 
2019       portion of service income             of service income collected in
      collected in advance.            advance.

e. Purchased P6,400 of supplies on account. At year’ end, P750 of

supplies remained on hand.
P 6,400- P 750 = P 5,650
Adjusting Entry
Dec. 31, 2019 Supplies Expense P 5,650
Accrued Supplies Expense P 5,650
To record supplies expense at year end.
 f. Invested P90,000 cash in a certificate of deposit that paid 4% annual
interest. The certificate was acquired on May 1 and carried a 1-year
term to maturity.
I = ( 90,000 ) (0.04) = 3600/12 = 300/month
300 x 8 = 2400
Adjusting Entry
Dec. 31, 2019 Accrued Interest Income 2,400
Interest Income 2,400

g. Paid P78,000 cash in advance on Sept. 1 for a 1-year lease on office

space.
78,000 / 12 mos. = 6,500 / mo.
Sep. 1, 2019 – Dec. 31, 2019 = 4 months x 6,500 = 26,000 expense portion
Jan. 1, 2020 – Sep. 1, 2020 = 8 months x 6,500 = 52,000 asset portion

COMPARATIVE JOURNAL ENTRIES

Expense Method Asset Method

Upon Payment Rent Expense          78,000 Prepaid Rent         78,000

Sep. 1, 2019      Cash                           78,000        Cash                         78,000
      To record rent expense         To record rent expense
paid. paid.

Adjusting Prepaid Rent            52,000 Rent Expense       26,000

Entry Dec. 31,       Rent Expense            52,000          Prepaid Rent         26,000
2019       To record the unexpired          To record the expired 
       portion of the rent paid.           portion of the rent paid.

B. On June 30, 2019, the end of fiscal year, the following information
is available to Noel Hungria’s accountant for making adjusting
entries:

a. Among the liabilities of the entity is a P2,400,000 mortgage payable.

On June 30, the accrued interest on this mortgage amounted to
P120,000.

Adjusting Entry
June. 30, 2019 Interest Expense P 120,000
Interest Payable P 120,000

b. Assume that on July 2, a Friday, the entity, which is on a five-day

workweek and pays employees weekly, paid its regular salaried
employees P192,000.

Adjusting Entry
June. 30, 2019 Salaries Expense P 115,200
Salaries Payable P 115,200

c. On June 29, the entity completed negotiations and signed a contract

to provide services to a new client at an annual rate of P36,000.

ANSWER: No entry since it’s just a signing of contract with no work

performed

d. The supplies account showed a beginning balance of P16,150 and

purchases during the year of P37,660. The year-end inventory
revealed supplies on hand of P11,860.

Adjusting Entry
June. 30, 2019 Supplies expense P 41,950
Accrued Supplies Expense P 41,950

e. The Prepaid Insurance account showed the following entries on June

30:
Beginning balance P15,300
January 1 29,000
May 1 33,660

The beginning balance represents the unexpired portion of a one-year

policy purchased in April of the previous year. The January 1 entry
represented a new one-year policy, and the May 1 entry is the additional
coverage of a three-year policy.

Adjusting Entry
June. 30, 2019 Insurance Expense P 31,670
Prepaid Insurance P 31,670

f. The following table contains the cost and annual depreciation for
buildings and equipment, all of which were purchased before the
current year:
Account Cost Annual Depreciation
Building P1,850,000 P 73,000
 Equipment 2,180,000 218,000

Adjusting Entry
June. 30, 2019
Depreciation Expense - Building P 73,000
Accumulated Depreciation - Building P 73,000

Building Cost 1,850,000

Less: Accumulated Depreciation 73,000
NET BOOK VALUE – June. 30, 2019 1,777,000

Depreciation Expense - Equipment P 218,000

Accumulated Depreciation - Equipment P 218,000

Delivery Equipment 2,180,000

Less: Accumulated Depreciation 218,000
NET BOOK VALUE – June. 30, 2019 1,962,000

g. On June 1, the entity completed negotiations with another client and

accepted an advance of P 210,000 for services to be performed in the
next year. The P210,000 was credited to Unearned Service Revenues.

Adjusting Entry
June. 30, 2019 Cash P 210,000
Unearned Service Revenue 210,000

h. The entity calculated that as at June 30, it had earned P35,000 on a

P75,000 contract that will be completed and billed in August.

Adjusting Entry

June. 30, 2019 Accrued Service Revenue P 35,000

Service Revenue 35,000

Required: Prepare the adjusting entries.