PROBLEM 1

ABC Company accumulates the following adjustment data at Dec 31, 2017:

1. Fees earned but unbilled total P6,000

2. Store Supplies of P3,000 have been used.
3. Utility expenses of P2,250 are unpaid.
4. Fees of P2,600 collected in advance have been earned
5. Salaries of P8,000 are unpaid.
6. Prepaid insurance totaling P3,500 has expired.

Instructions:

A) Determine the type of adjustment (prepaid insurance, Unused Supplies, unearned revenue,
accrued revenue or accrued expense, depreciation, allowance for doubtful expense or errors)
B) Prepare adjusting entries.

Answers: (ABC Company)

1. A) Accrued Revenue
B) Adjusting Entry:
Accounts Receivable P6, 000
Fees Earned P6,000
2. A) Unused Supplies
B) Adjusting Entry:
Supplies Expense 3,000
Supplies 3,000
3. A) Accrued Expense
B) Adjusting Entry:
Utilities Expense 2,250
Accrued Utilities Expense 2,250
4. A) Unearned Revenue
B) Adjusting Entry:
Unearned Fees Revenue 2,600
Fees Revenue 2,600
5. A) Accrued Expense
B) Adjusting Entry:
Salaries Expense 8,000
Accrued Salaries 8,000
6. A) Prepaid Expense
B) Adjusting Entry:
Insurance Expense 3,500
Prepaid Insurance 3,500
PROBLEM 2

PEREZ ADVERTISING AGENCY

TRIAL BALANCE

December 31, 2008

Debit Credit
Cash P76, 000
Advertising Supplies 12, 500
Prepaid Insurance 3,000
Office Equipment 25,00o
Notes Payable P25,000
Accounts Payable 12,500
Unearned Fees 6,000
Maniago, Capital 50,000
Maniago, Drawing 2,500
Fees Earned 50,000
Salaries Expense 20,000
Rent Expense 4,500
Total 143, 500 143,500

For the year ended December 31, the following adjustments should be made:

1. P5,000 worth of supplies are still on hand.

2. Insurance was bought last October 1 for a one-year fire insurance policy.
3. The office Equipment purchased on May 1 has an annual depreciation of P2,400.
4. In December, the company earned P1,000 in fees for advertising services that were not billed to
clients before December 31.
5. The note payable is for one-year dated November 1, with an annual interest of 12%.
6. Accrued Salaries amount to P6,000
7. Of the unearned fees, P2,000 has been earned at the end of the year.

Requirement: Prepare the necessary adjusting entries at year-end.

Adjusting entries for Dec 31, 2008:

1. Advertising Supplies Expense P7,500
Advertising Supplies P7,500
(P12,000-P5,000)

2. Insurance Expense 750

Prepaid Insurance 750
(3,000/12) x 3

3. Depreciation Expense 1,600

Accumulated Depreciation-Office Equipment 1,600
 (2,400/12) x 8

4. Accounts Receivable 1,000

Fees Earned 1,000

5. Interest Expense 500

Interest Payable 500
(25,000 x 12% x 2/12)

6. Salaries Expense 6,000

Salaries Payable 6,000

7. Unearned Fees 2,000

Fees earned 2,000

PROBLEM 3

Use the following information to answer questions 1 - 4:

On December 1, your company began operations. On December 3 it purchased P1,500
of supplies and recorded the transaction with a debit to the current asset Supplies and
a credit to the current liability Accounts Payable. Your company prepares monthly
financial statements at the end of each calendar month. At the end of the day on
December 31, your company estimated that P700 of the supplies were still on hand in
the supply room. The following questions pertain to the adjusting entry that should be
entered by your company.
1. What date should be used to record the December adjusting entry?
December 31

2. What is the name of the account that will be debited?

Supplies Expense (an income statement account)

3. What is the name of the account that will be credited?

Supplies (a balance sheet account)

4. What is the amount of the debit and the credit?

P800.

Calculation:
 The balance in the current asset account Supplies before any adjustment is a debit
balance of P1,500. The actual amount of supplies on hand (unused) was determined to
be P700. Therefore, the balance in the current asset account Supplies should be a debit
balance of P700, not the present balance of P1,500. To reduce the Supplies account
from a debit balance of P1,500 to become a debit balance of P700, you will need to
credit Supplies for P800. The other half of the entry needs to be a debit of P800 to
Supplies Expense. Since expenses are costs that have been used up, the P800 debit
balance in Supplies Expense is proper. (Your company bought P1,500 and has P700 on
hand/unused. Therefore, P800 must have been used up.)

Use the following information to answer questions 5- 8:

On December 1, your company began operations. On December 4 it purchased P1,500
of supplies and recorded the transaction with a debit to the income statement
account Supplies Expense and a credit to the current liability Accounts Payable. Your
company prepares monthly financial statements at the end of each calendar month. At
the end of the day on December 31, your company estimated that P700 of the supplies
were still on hand in the supply room. The following questions pertain to the adjusting
entry that should be entered by your company.

5. What date should be used to record the December adjusting entry?

December 31
6. What is the name of the account that will be debited?
Supplies (a balance sheet account)

7. What is the name of the account that will be credited?

Supplies Expense (an income statement account)

8. What is the amount of the debit and the credit?

P700.

Calculation:
Account balances before adjustment: Supplies P0; Supplies Expense P1,500.
Since there are P700 of supplies on hand, the balance in the current asset account
Supplies must be increased from P0 to P700. Hence a debit to Supplies for P700. The
present balance of P1,500 in the Supplies Expense account must be reduced, because
not all P1,500 of supplies have been used. Since P700 of supplies are on hand the
company is assumed to have used only P800 of supplies. (P1,500 minus P700 on
hand.) To report Supplies Expense of P800, we need to credit Supplies Expense for
P700.

Use the following information to answer questions 9 - 12:

A bank lent P100,000 to a customer on December 1 that required the customer to pay
an annual percentage rate (APR) of 12% on the amount of the loan. The loan is due in
six months and no payment of interest or principal is to be made until the note is due on
 May 31. The bank prepares monthly financial statements at the end of each calendar
month. The following questions pertain to the adjusting entry that the bank will be
making for its accounting records.

9. What date should be used to record the December adjusting entry?

December 31
10. What is the name of the account that should be debited?
Interest Receivable (a balance sheet account)

11. What is the name of the account that should be credited?

Interest Revenue or Interest Income (an income statement account)

12. What is the amount of the debit and the credit?

$1,000.
Computation:
12% per year is 1% per month X $100,000 = $1,000 per month.

Another method is Principal X Rate X Time = $100,000 X .12 X 1/12 = $1,000.

As of December 31 the bank has earned just one month of interest. When the note
becomes due, the bank will collect six months of interest for a total of $6,000 ($100,000
X .12 X 6/12).