ACTIVITY I

Classify the following items as (A) deferred expense/prepaid expense, (B) deferred
revenue/unearned revenue, (C) accrued expense or (D) accrued revenue.

A Supplies on hand
C Utilities owed but not yet paid
A A three-year premium paid on a fire insurance policy
B Subscriptions received in advance by a newspaper publisher
B Professional fees received but not yet earned
C Salary owed but not yet paid
C Interest owed but payable in the following period
A Interest paid in advance from a bank loan
D Professional fees earned but not yet received
D Services rendered but uncollected
B Rent collected in advance
B Interest collected in advance by the creditor
B Income collected but not yet earned
A Advertising paid in advance for three months
A Rent paid in advance

ACTIVITY II
Queen Company paid P36,000 premium on a three-year insurance policy on September 1,
2017. The effectivity of the policy begins on September 1, 2017.

A. Under the cash basis of accounting, how much insurance expense shall be reported for
each of the following year?
2017 P36,000 2019 P0
2018 P0 2020 P0

B. Under the accrual basis of accounting, how much insurance expense shall be reported for
each of the following year?
2017 P4,000 2019 P12,000
2018 P12,000 2020 P8,000

C. Assuming the cash basis, how much of the premium will appear as an asset on the
statement of financial position as of the end of the following year?
12/31/2017 P0 12/31/2019 P0
12/31/2018 P0 12/31/2020 P0

D. Assuming the accrual basis, how much of the premium will appear as an asset on the
statement of financial position as of the end of the following year?
12/31/2017 P32,000 12/31/2019 P8,000
12/31/2018 P20,000 12/31/2020 P0

- THE ADJUSTING PROCESS - /ljm

 ACTIVITY III
A. Blue Cab Transport Services purchased office supplies amounting to P35,000 on
January 3, 2020. Prepare the entry to record the above transaction under the (1) Asset
Method and (2) Expense Method.

Date Account Name P.R. Debit Credit

ASSET METHOD
2020
Jan 3 Office Supplies 35,000
Cash 35,000
To record purchase of office supplies

EXPENSE METHOD
2020
Jan 3 Office Supplies Expense 35,000
Cash 35,000
To record purchase of office supplies

B. Assuming the office supplies used during the month amounted to P7,000, prepare the
adjusting entry under the (1) Asset Method and (2) Expense Method.

Date Account Name P.R. Debit Credit

ASSET METHOD
2020
Jan 31 Office Supplies Expense 7,000
Office Supplies 7,000
To record the office supplies used and to update Office Supplies account

EXPENSE METHOD
2020
Jan 31 Office Supplies 28,000
Office Supplies Expense 28,000
To record the unused office supplies and to update Office Supplies Expense account

C. Assuming the company made no other purchases of office supplies during the month and
that the office supplies inventory on January 31, 2020 amounted to P3,500, prepare the
adjusting entry under the (1) Asset Method and (2) Expense Method.

Date Account Name P.R. Debit Credit

ASSET METHOD
2020
Jan 31 Office Supplies Expense 31,500
Office Supplies 31,500
To record the office supplies used and to update Office Supplies account

EXPENSE METHOD
2020
Jan 31 Office Supplies 3,500
Office Supplies Expense 3,500
To record the unused office supplies and to update Office Supplies Expense account

- THE ADJUSTING PROCESS - /ljm

 ACTIVITY IV
A. On September 1, 2019, Liliw Apartelle received P180,000 from a tenant. The amount
represents one-year rental beginning month of September. Prepare the entries to be
prepared on September 1 and the adjusting entry on December 31, under both the
liability method and the revenue method.

Date Account Name P.R. Debit Credit

LIABILITY METHOD
2019
Sep 1 Cash 180,000
Unearned Rent Revenue 180,000
To record receipt of advance rent payment

Dec 31 Unearned Rent Revenue 60,000

Rent Revenue 60,000
To record the income portion of the unearned rent (P180,000 * 4/12)

REVENUE METHOD
2019
Sep 1 Cash 180,000
Rent Revenue 180,000
To record receipt of advance rent payment

Dec 31 Rent Revenue 120,000

Unearned Rent Revenue 120,000
To record the unearned portion of rent revenue [P180,000 - (P180,000 * 4/12)]

B. At the end of 2019, P18,725 of fees has been earned by Marcella Consulting Services but
have not been billed to the clients. Prepare the adjusting entry to record the transaction.

Date Account Name P.R. Debit Credit

2019
Dec 31 Accounts Receivable 18,725
Consultancy Fees 18,725
To record fees earned but unbilled as of year-end

C. At December 31, 2019, the account Rent Income showed unadjusted balance of P60,000.
The amount was received from a tenant to cover four-month rent beginning November 1.
Prepare the adjusting entry.

Date Account Name P.R. Debit Credit

REVENUE METHOD
2019
Dec 31 Rent Income 30,000
Unearned Rent Income 30,000
To record the unearned portion of rent income [P60,000 - (P60,000 *2/4)]

- THE ADJUSTING PROCESS - /ljm

 D. On October 1, 2019, Clever Company paid P54,000, representing one year and six
months of insurance premium beginning month of November. Clever Company charged
the amount to Prepaid Insurance upon payment. Prepare the adjusting entry on
December 31, 2019.

Date Account Name P.R. Debit Credit

ASSET METHOD
2019
Dec 31 Insurance Expense 6,000
Prepaid Insurance 6,000
To record the expired portion of prepaid insurance (P54,000 *2/18)

E. On August 15, 2019, Gym Paredes Fitness Center paid an advance rental on a space of a
building it is occupying in the amount of P120,000. The amount covers one-year rent paid
in advance beginning month of September. Prepare the adjusting entry on December 31,
2019 assuming the company uses the expense method.

Date Account Name P.R. Debit Credit

EXPENSE METHOD
2019
Dec 31 Prepaid Rent 80,000
Rent Expense 80,000
To record the unexpired portion of prepaid rent [P120,000 - (P120,000 *4/12)]

- THE ADJUSTING PROCESS - /ljm