Topic 6 FA: Illustration

Problem 1
Prepare the necessary adjusting entries on the following items on December 31, 20x5.
1. Unpaid salaries as of December 31, 20x5 amounted of P12,000.
2. Office supplies bought amounting to P4,000 was recorded using the asset account Supplies on hand. At the end
of the accounting period, the supplies on hand per count amounted to P1,800.
3. Paid advertising on August 1, 20x5 amounting to P12,000 for a 2-year coverage contract. Asset account was debited
upon payment.
4. Received cash as advanced rent from customer amounting to P96,000 for 2-year period. The rent will start on
September 1, 20x5. At the time of cash receipt, Rent Income account was credited.
5. Interest earned on notes receivable amounting to P2,000 was not yet collected.
6. Store supplies per inventory count amounted to P2,500. At the time of purchase, Supplies expense account was
debited amounting to P4,000.
7. On December 31 before adjustment, the accounts receivable account had a debit balance of P150,000, and the
allowance for doubtful accounts has a credit balance of P3,000. The accounting records also show that the Service
Income account has a credit balance of P500,000. It is estimated that doubtful accounts for the period is 5% of
accounts receivable.
8. On December 31 before adjustment, the accounts receivable account had a debit balance of P150,000, and the
allowance for doubtful accounts has a credit balance of P3,000. The accounting records also show that the Service
Income account has a credit balance of P500,000. It is estimated that doubtful accounts for the period is 1% of
service income.
9. Furniture and fixtures was purchased on July 1, 20x5 amounting to P530,000. It is estimated that the asset is useful
after 10 years in which it can be sold for P20,000.
10. A machinery was acquired on October 1, 20x4 for P300,000. The asset is estimated to be useful for 5 years which,
it can be sold for P20,000.

Problem 2
The following accounts were taken from the records of Lu Beauty Shop as of December 31, 20x5:
Cash 184,000
Accounts receivable 150,000
Allowance for doubtful accounts 10,000
Office supplies 15,000
Office equipment 250,000
Accumulated depreciation – office equipment 12,000
Repair service equipment 300,000
Accounts payable 50,000
Bank loan payable 200,000
Lu, Capital 378,000
Service income 570,000
Salaries and wages 60,000
Rent expenses 216,000
Utilities expense 30,000
Taxes and licenses 15,000

Additional information:
1. The office equipment was purchased last July 1, 20x5 with estimated useful life of 10 years, and salvage value of
P10,000.
2. The bank loan matures one year after the grant date on September 1, 20x5, and with 10% interest payable on
maturity period.
3. The repair service equipment, which was purchased on April 1, 20x5, has estimated useful life of 10 years with
P10,000 salvage value.
4. Unpaid salaries, P15,000.
5. The rent expenses cover 3-year period, and was paid on May 1, 20x5.
6. Doubtful account is 10% of outstanding accounts receivable.

Required: Prepare the necessary adjusting entries.