Accounting 111(Adjustment of Accounts)

I - Multiple choice. Write the letter of your answer IN CAPITAL in the space provided beside the number.

__B__1. Luz Un Services acquired an equipment on July 1, 2020, for P160,000. The equipment has an estimated useful life
of 10 years and an estimated salvage value of P10,000. Un computes depreciation on a straight line basis. How much
depreciation should be recorded for 2020?
A. P16,000 B. P15,000 C. P8,000 D. P7,500

__B_2. Cris Laurente Services purchased a 1-year insurance policy on April 1, 2020, for P12,000. The amount of prepaid
insurance reported on the balance sheet and the amount of insurance expense reported on the income statement at
December 31, 2020, are respectively:
A. P3,000 ; P9,000 B. P9,000 ; P3,000 C. P4,000 ; P8,000 D. P8,000 ; P4,000

__C_3. Which of the following transactions did not result in revenue being reported?
A. Sold merchandise for cash C. Collected an account receivable
B. Sold merchandise on account D. All of the above transactions would result in revenue being reported

__A__4. On December 26, 2020, Fernando Lopez hired three temporary staff to begin work immediately for some rush
works. The clerks were paid on Jan. 9, 2021. Disregarding amounts, what entry should be made on December 31, 2020?
A. debit Salaries Expense and credit Salaries Payable C. debit Salaries Payable and credit Cash
B. debit Salaries Expense and credit Cash D. debit Salaries Payable and credit Salaries Expense

__C__5. Which of the following accounts is not an expense?

A. Depreciation B. Sales Salaries C. Withdrawals D. Delivery Expense

__C__6. The normal balances in the accounts, Depreciation Expense and the related Accumulated Depreciation, are:
A. debit and credit, respectively C. Both have debit balances
B. credit and debit, respectively D. Both have credit balances

__A__7. In preparing its 2020 adjusting entries, the bookkeeper of Edhgar Limin Property Managers failed to adjust rental
fees received in advance (liability method) for the amount of rental fees earned during 2020. As a result of this error:
A. 2020 net income is understated, owner’s equity is understated, and liabilities are overstated.
B. 2020 net income is overstated, owner’s equity is overstated, and liabilities are correctly stated.
C. 2020 net income is understated, owner’s equity is understated, and liabilities are understated.
D. None of the above.

__C___8. In preparing its 2020 adjusting entries, the bookkeeper of Lynette Castro Staffers omitted to adjust prepaid
insurance for the amount of insurance expired during 2020. As a result of this error:
A. 2020 net income is understated, owner’s equity is understated, and assets are understated.
B. 2020 net income is overstated, owner’s equity is overstated, and assets are correctly stated.
C. 2020 income is overstated, owner’s equity is overstated, and assets are overstated.
d. None of the above.

__C__9. Monina Bernardino distributes a monthly sports magazine. On July 1, 2020, the entity sold 1,000 2-year
subscriptions for P200 each. On December 31, 2020, the amount reported as a liability on the balance sheet and the amount
reported as revenue on the income statement are, respectively:
A. P0 ; P200,000 B. P50,000 ; P150,000 C. P100,000 ; P100,000 D. P150,000 ; P50,000

__A__10. Leo Paolo Perez, an attorney, collects retainer’s fees from all of his clients. At the beginning of the current
month, the Unearned Retainer’s Fees account had a balance of P24,000. Perez collected additional retainers fees totalling
P94,000 from his clients during the month. The month-end balance sheet reported a P16,000 balance in the Unearned
Retainer’s Fees account. How much of the retainer’s fees were earned by Perez during the month?
A. P118,000 B. P110,000 C. P86,000 D. P102,000

__A__11. At the beginning of the month, Nelson Daganta Business Consultants reported a P3,600 balance in its Prepaid
Insurance Account. At month-end, the company reported Insurance Expense of P4,500 in its income statement and a
balance of P1,900 in the Prepaid Insurance account. What was the cost of the additional insurance during the month?
A. P4,500 B. P6,200 C. P2,800 D. P6,400

__D__12. An accountant debited Supplies Expense P16,000 and credited Cash P16,000 in error. The correct entry should
have been to debit Supplies for P16,000 and credit Cash for P16,000. As a result for this error;
A. assets are overstated by P16,000 C. the trial balance will not balance
B. expenses are understated by P16,000 D. expenses are overstated by P16,000

__B__13. Accounts receivable had total debits for the month of P15,000 and total credits for the month of P7,000. If the
beginning balance in Accounts Receivable was P12,000, what was the net change in Accounts Receivable?
A. a decrease of P8,000 C. an increase of P8,000
B. an increase of P32,000 D. a decrease of P32,000
__B__14. Accounts payable had a balance of P30,000 on April 1. During April, P17,500 of equipment was acquired on
account. The April 30 balance was a credit of P28,500. How much were payments to account payable during April?
A. P11,000 B. P22,500 C. P19,000 D. P46,000

__B__15. Which of the following errors would cause unequal totals in the trial balance?
A. The firm recorded P21,000 received from a customer in advance for the delivery of goods as a debit of P1,000 to cash
and a credit of P21,000 to sales.
B. The firm failed to enter the cost of electricity used during the month as an expense and fails to recognize the P22,000
owed to Meralco.
C. All these errors will cause unequal trial balance totals.
D. None of these errors will cause unequal trial balance totals.

II – Give the requirements accordingly.

A. Preparing adjusting entries. Prepare the adjusting entry for each of the following for the year ending December 31, 2013.
1. Paid P48,000 for a 1-year insurance policy to commence on Sept. 1. The amount of premium was debited to Prepaid
Insurance
2. Borrowed P200,000 by issuing a 1-year note with 7% annual interest to Century Savings Bank on Oct. 1, 2013.
3. Paid P320,000 cash to purchase a delivery van(surplus) on Jan. 1. The van was expected to have a 3-year life and a
P20,000 salvage value. Depreciation is computed on a straight line basis.
4. Received a P36,000 cash advance for a contract to provide services in the future. The contract required a 1-year
commitment, starting April 1.
5. Purchased P12,800 of supplies on account. At years end, P1,500 of supplies remained on hand.
6. Invested P180,000 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.
7. Paid P156,000 cash in advance on Sept. 1 for a 1-year lease on office space.
ANSWERS:
1. Asset Method
Insurance Expense 16, 000
Prepaid Insurance 16,000
To record insurance premium paid.

Expense Method
Prepaid Insurance 32,000
Insurance Expense 32,000
To record insurance premium paid.

2. Interest Expense 3,500

Interest Payable 3,500
To record interest expense that was incurred.

3. Depreciation Expense- Service Vehicle 100,000

Accumulated Depreciation Service Vehicle 100,000
To record depreciation expense.

4. Income Method
Unearned Service Income 27,000
Service Income 27,000
To record the unearned income of service collected in advance.

Liability Method
Service Income 9,000
Unearned Service Income 9,000
To record the unearned liability of service collected in advance.

5. Supplies Expense 11,300

Supplies 11,300
To record used supplies.

6. Interest Receivable 4,800

Interest Income 4,800
To record interest income earned.

7. Asset Method
Rent Expense 104, 000
 Prepaid Rent 104,000
To record rent premium paid.

Expense Method
Prepaid Rent 52,000
Rent Expense 52,000
To record rent premium paid.

B. Listed below is information pertaining to activities of the K. Dionne Company that require adjustments for the May 31,
2012 year end financial statements.
A. K. Dionne Company entered into a lease agreement with Mosqueda Corporation on Nov. 1, 2011 for rental of
office space for the next 24 months for P312,000. A second lease was signed on Feb. 1, 2012 for storage space for
6 months, with P112,800 paid in advance.
B. On June 1, 2011, the Office Supplies account had a debit balance of P85,200. Office Supplies in the amount of
P330,400 were acquired during the year. A physical count of office supplies on May 31, 2012 totaled P63,400.
C. K. Dionne Company sells magazines by subscription for P30 per copy. During the year, 94,400 two-year
subscriptions were sold. As at June 1, 2011, the Unearned Magazine Revenues account had a balance of P630,000.
At year-end, it is determined that the liability to provide subscribers future magazines amounted to P1,226,000.
D. On December 1, 2011, K. Dionne Company acquired a new computer for P262,800. It is anticipated that the
computer will be used for 4 years with no salvage value.
E. K. Dionne Company pays its employees every 8th and 22nd day of the month. There are five workdays within a
workweek. The last payday was on May 22nd, 2012 (a Wednesday). By month-end, there are already seven days of
accrued salaries. The pay scale at K. Dionne is as follows:
Employee Category Number in Category Daily Rate per Employee
Executives 3 1,200
Managers 6 680
Staff 36 480
F. K. Dionne Company borrowed P2,000,000 from the Dayrit Development Bank on Mar. 1, 2012 and issued a 24%
one-year note payable.

Required: Prepare the adjusting entries.

ANSWERS:
A. Rent Expense 166,200
Prepaid Rent 166,200
To record expired rent.

B. Supplies Expense 352,000

Supplies 352,000
To record used supplies.

C. Unearned Subscription Revenue 2,236,000

Subscription Revenue 2,236,000
To record earned portion of the liability.

D. Depreciation Expense- Computer 32,850

Accumulated Depreciation- Computer 32,850
To record depreciation expense of the computer.

E. Salaries Payable 174, 720

Salaries Payable 174, 720
To record salaries paid.

F. Interest Expense 120,000

Interest Payable 120,000
To record interest paid.

C. Presented below, is the unadjusted trial balance of I. Mosqueda Travel Agency for the year ended December 31, 2012.
Mosqueda Travel Agency
Unadjusted Trial Balance
 December 31, 2012
Account Titles ___Debit___ __Credit
Cash P252,000
Accounts Receivable 1,290,000
Prepaid Rent 720,000
Office Supplies 126,000
Furniture’s 4,350,000
Accumulated Depreciation P870,000
Notes Payable 1,800,000
Accounts Payable 570,000
I. Mosqueda, Capital 3,360,000
I. Mosqueda, Withdrawals 2,400,000
Travel Revenues 10,266,000
Salaries Expense 7,542,000
Miscellaneous Expense 186,000 _________
TOTALS 16,866,000 P16,866,000
Information pertaining to I. Mosqueda’s account is as follows:
A. On Nov. 1, 2012, I. Mosqueda paid Vigan Rental Agency P720,000 for six months’ rent on the office building
commencing that date.
B. Office supplies on hand at December 31, 2012 amounted to P54,000.
C. Depreciation expense for the furniture amounted to P150,000 for the year.
D. At December 31, 2012, P210,000 salaries have accrued.
E. The P1,800,000 note payable was issued on Oct. 1, 2012. It will be repaid in 12 months together with interest at an
annual rate of 24%.
Required:
1. Prepare the adjusting entries(A-E).
A. Rent Expense 240,000
Prepaid Rent 240,000
To record expired rent.

B. Supplies Expense 72,000

Supplies 72,000
To record supplies.

C. Depreciation Expense- Furniture 150,000

Accumulated Depreciation Furniture 150,000
To record the accumulated depreciation

D. Salaries Expense 210,000

Salaries Payable 210,000
To record salaries paid.

E. Interest Expense 108,000

Interest Payable 108,000
To record interest payable.

2. After adjustments determine the following;

a. Net Income ___1,758,000________
b. Total Assets _____5,406,000________
c. Total Liabilities _____2,688,000________
d. I. Mosqueda, Capital Dec. 31, 2012 3,360,000

D. Determining the Effects of Omissions.

Using the following table, indicate the effect of the following errors or omission on the financial statement
classifications listed. If as a result of the omission a classification is overstated, place a (+) in the appropriate space. An
understatement is to be indicated by a (-). If the omission has no effect on the classification, place a (0) in the
appropriate space.
Effects of Omissions
Classification A B C D E F G
Revenues 0 + 0 0 0 0 -
Expenses - 0 - 0 - 0 0
Net Income + + + 0 + 0 -
Total Assets + + + + + 0 -
Total Liabilities 0 0 0 + 0 0 0
Owners’ Equity + + + 0 0 0 -
 A. Payment for repairs erroneously debited to Building account.
B. Recorded collection of an account receivable by debiting Cash and crediting a revenue account.
C. Depreciation for the month was omitted.
D. Recorded twice an acquisition of office equipment on account.
E. Recorded the acquisition office equipment for cash as a debit to Office Equipment and a credit to Depreciation
Expense.
F. Recorded cash payment for advertising by debiting Repairs Expense and crediting Cash.
G. Rendered services for cash but made no record of the transaction.

E. On September 30, 2014 Shara Enterprises bought a brand new computer costing P150,000. It has an estimated economic
life of 5 years with a P30,000 scrap value at the end of its life. The accounting period ends on December 31, 2014.

Required:
1. Adjusting journal entry on December 31, 2014.
Depreciation Expense 6,000
Accumulated Depreciation 6,000
To record depreciation expense of the computer.

2. Accumulated depreciation on December 31, 2015 ____P30,000________.

3. Net book value of the computer on December 31, 2015 _____P120,000_________.

F. Kesha Enterprises has insured its building and a truck with Seguro Insurance Co. The following data relates to insurance
coverage and premium payment:
Property Insured Period Covered Annual Premium Paid
Building June 1, 2014 to June 1, 2015 P72,000
Truck Sept. 1, 2014 to Sept. 1, 2015 36,000
Total P108,000

Required: Adjusting journal entry assuming the business adopts a calendar accounting period and Insurance Expense
account was debited upon payment.
_Prepaid Insurance 54,000
Insurance Expense 54,000
To record expired insurance.

G. The Accounts Receivable and its related valuation account showed the following balances on December 31, 2014 just
before the preparation of the year-end adjustments:
Debit Credit
Accounts Receivable P900,000
Allowance for Doubtful Accounts P3,000

Required: Assuming the provision for doubtful accounts should be brought up to 1% of the outstanding collectible
account, give the following:
1. Adjusting entry on December 31, 2014.
_ Doubtful Accounts 6,000
Allowance for doubtful accounts. 6,000
To record estimated uncollected accounts.

2. Net realizable value on December 31, 2014 P891,000.

H. Mr. Moises Mosqueda collected the amount of P108,000 from a tenant of the building it owns. This represent advance
rental which covers the period from September 1, 2014 to September 1, 2015 (one year contract). The receipt of cash
was correspondingly credited by a liability account.
Required:
1. Adjusting journal entry on December 31, 2014.
Income Method
Unearned Rent Income 36,000
Rent Income 36,000
To record the unearned income of rent service collected in advance.

Liability Method
Rent Income 72,000
Unearned Rent Income 72,000
To record the unearned liability of rent service collected in advance.
I. Reconstruct the wrong entries prepared, the correct entries that should be made, the would be correcting entries.

1. Payment of insurance expense in the amount of P90,000 was erroneously recorded at P60,000.
2. Collection of customer’s account in the amount of P18,000 was erroneously credited to Legal Fees Income.
3. Purchase of office supplies on account in the amount of P3,000 was erroneously credited to Accounts Receivable.
The amount was also erroneously recorded at P21,000.

Answers:
Entry Made Correct Entries Correcting Entries
1. Insurance Expense 60,000 Insurance Expense 90,000 Insurance Expense 30,000
Cash 60,000 Cash 90,000 Cash 30,000
To record paid insurance. To record paid insurance. To record paid insurance.

2. Cash 18,000 Cash 18,000 Legal Fees Income 18,000

Legal Fees Income 18,000 Accounts Receivable 18,000 Accounts Receivable 18,000
Received legal fees income. Collected cash from client. Corrercts error in legal fees
income and the accounts
receivable

3. Office Supplies 21,000 Office Supplies 3,000 Office Supplies 18,000

Accounts Receivable 21,000 Accounts Payable 3,000 Accounts Payable 18,000
To record received To record purchased To record purchased
office supplies. Office supplies on office supplies on
account. account.