LET’S ANALYZE

Activity 15. Identifying the terms needed in the study of adjusting entries is just a guide for
you to correctly prepare the required adjusting entries. In this activity, you are required to
correctly journalized the adjusting entry. For each situation (transaction) answer the
questions.

CASE 1
On Nov. 15, 2019, Jay Cesar borrowed money from Mayaman Bank for P400,000 to
finance an -on-going project that he ventured into. He issued a 150 note dated Nov.
15, 2019. The note is 10% interest bearing note which will be paid together with the
principal upon maturity. (Use ordinary interest in computing interest)

1. When is the maturity date of the note?

_____________________________________.
2. What is the maturity value of the note?
____________________________________.
3. How much is the accrued Interest?
________________________________________.
4. How much interest payable to be recognized on Dec. 31, 2019?
________________.
5. How much interest Expense to reported in the Income Statement on Dec. 31,
2019?
6. Prepare the adjusting entry on Dec. 31, 2019. _____________________________.
7. Prepare the journal entry to be made on maturity
date.______________________.

CASE 2
Magic Trading decided to invest the excess cash in a more profitable instrument to
earn an additional income for the company. A time deposit for P2,500,000 was
purchased on Aug. 1, 2019 which will mature on April 1, 2020. The time deposit has
an annual interest rate of 5% which can be withdrawn by the company on a monthly
basis, every 1st day of the following month. So the interest for August can be drawn on
Sept. 1, 2019 and so on.
1. How much interest income will be recognized for the year 2019?
_________________.
2. How much of the interest income is actually collected for the year 2019?
___________.
3. Is there and accrued interest income? If yes, how much and why? __________. If
your answer is No, why?
 4. How much is the amount of Interest Receivable will be recognized on Dec. 31,
2019?
5. On April 1, 2020, how much cash will Magic Trading receive from the Bank for the
Time deposit?
6. What are the entries to record the following?
a. August 1, 2019 when the Time Deposit was placed.
b. April 1, 2020 when the Time Deposit mature.

CASE 3
Malaya Laundry is engaged in self-service laundry for quite a long period of time. The
selected transactions below are some business transactions that transpired during
2019.
a. Feb. 1, 2019 Bought Laundry supplies in the amount of P120,000. At the end of
the year Dec. 31, 2019, physical inventory of Laundry Supplies revealed a balance
of P22,800.
b. May 1, 2019 renewed his contract with the owner of the building for another year
and paid a one-year rent for P144,000.
c. Oct. 1, 2019 entered into a one-year contract with a hospital to do the laundry of
all hospital uniforms of doctors and nurses for a monthly rate of P8,000 and
received cash for one year advance payment.

Instruction:
1. Let us assume that Malaya Laundry uses the asset approach in recording
prepayments and liability in recording pre-collected income. What is the original
entry made and the adjusting entry required at the end of Dec. 31, 2019?
2. Let us assume that Malaya Laundry uses the expense approach in recording
prepayments and income in recording pre-collected income. What is the original
entry made and the adjusting entry required at the end of Dec. 31, 2019?
3. If the accountant of Malaya has to reverse the adjusting entry, which entry or set of
entries under assumption 1 and 2 would have been reversed? and Why?
4. Use the provided format for your answer.

FORMAT IS BELOW: