Illustrative Problem #1: Liabilities

In conjunction with your firm’s examination of the financial statements of Tricia Company as of
December 31, 2021, you obtained from the voucher register the information shown in the
working paper below.

Item Entry Date Voucher Account Charged

No. Ref. Description Amount
1 12.18.2021 12-202 Supplies, purchased FOB
destination, 12.15.2021; Supplies on
received, 12.17.2021 20,000 hand

2 12.18.2021 12-204 Auto insurance, 12.15.2021 Prepaid

to 12.15.2022 24,000 insurance

3 12.21.2021 12-206 Repair services; received Repairs and

12.20.2021 24,000 maintenance

4 12.21.2021 12-214 Merchandise shipped FOB

shipping point,
11.20.2021; received, 17,000 Inventory
12.4.2021

5 12.21.2021 12-219 Payroll, 12.6.2021 to Salaries and

12.20.2021 69,000 wages
(12 working days)

6 12.26.2021 12-221 Subscription to tax reporting Dues and

service for 2022 5,000 subscription
expense

7 12.28.2021 12-230 Utilities for December 2021 29,000 Utilities expense

8 12.28.2021 12-234 Merchandise shipped FOB

destination, 12.24.2021;
received, 1.2.2022 111,500 Inventory

9 12.28.2021 12-243 Merchandise shipped FOB

destination, 12.26.2021;
received, 12.29.2021 84,000 Inventory

10 01.02.2022 01-001 Legal services, received Legal and

12.28.2021 46,000 professional
expense

11 01.02.2022 01-002 Medical services for

employees for December
2021 25,000 Medical expense

12 01.05.2022 01-003 Merchandise shipped FOB

shipping point,
 12.29.2021; received, 55,000 Inventory
1.4.2022

13 01.10.2022 01-004 Payroll, 12.21.2021 to

01.05.2022 Salaries and
(12 working days in total, 72,000 wages
4 working days in Jan.)

14 01.10.2022 01-005 Merchandise shipped FOB

shipping point, 1.2.2022;
received, 1.5.2022 64,000 Inventory

15 01.12.2022 01-02022 Manufacturing royalties, Manufacturing

Dec. 2021 39,000 costs

16 01.12.2022 01-007 Merchandise shipped FOB

destination, 1.3.2022;
received, 1.10.2022 38,000 Inventory

17 01.13.2022 01-008 Maintenance services, 9,000 Repairs and

received 1.9.2022 maintenance

18 01.14.2022 01-009 Interest on bank loan,

10.12.2021 to 1.10.2022 30,000 Interest expense

19 01.15.2022 01-010 Manufacturing equipment, Machinery and

installed on 12.29.2021 254,000 equipment

20 01.15.2022 01-011 Dividends declared, Dividends

12.15.2021 160,000 payable

Accrued liabilities as of December 31, 2021 were as follows:

Accrued payroll 48,000

Accrued interest payable 26,667
Dividends payable 160,000
Accrued royalties payable 39,000

The Accrued payroll, Accrued interest payable, and Accrued royalties payable accounts were
reversed on January 1, 2022.

REQUIRED:

Prepare adjusting entries as of December 31, 2021 based on your review of the data given
above.

Solution:
Adjusting entries:
Item no. 2 Insurance expense (P24,000/12 x 1/2) 1,000
 Prepaid insurance 1,000

Item no. 6 Prepaid dues and subscription 5,000

Dues and subscription exp 5,000

Item no. 8 Vouchers payable 111,500

Inventory 111,500

Item no.10 Legal and professional expense 46,000

Vouchers payable 46,000

Item no.11 Medical expense 25,000

Vouchers payable 25,000

Item no.12 Inventory 55,000

Vouchers payable 55,000

Item no.19 Machinery and equipment 254,000

Vouchers payable 254,000