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FINANCIAL ACCOUNTING & REPORTING BATCH 24-MAY 2021

FAR 01C: REVIEW OF THE ACCOUNTING CYCLE ILLUSTRATIONS

PROBLEM 1 ADJUSTING ENTRIES
For the following independent cases, determine the adjusting journal entry that should be recorded at December 31,
20x7.
1. On December 1, Acts Tax Service received a P20,000 cash retainer for tax preparation services to be rendered
ratably over the next 4 months.
Case 1: The full amount was credited to the liability account.

Case 2: The full amount was recognized as revenue.

2. On December 1, 20x7, J.C. Cohen Company purchased a general liability insurance policy for P3,600 to provide
coverage for the one year.
Case 1: The company recorded the policy as an asset when purchased

Case 2: The company expensed the cost of the policy on December 1, 20x7

3. Salaries of P600 are unpaid as at December 31, 20x7.

4. Revenue earned but unbilled as at December 31, 20x7 total P750.

5. Utility expenses of P200 are unpaid as at December 31, 20x7.

PROBLEM 2 REVERSING ENTRIES

A company receives interest on a P40,000, 8%, 5-year note receivable each April 1. At December 31, 20x7, the
following adjusting entry was made to accrue interest receivable:

Interest Receivable ................................................................................. 2,400

Interest Revenue ...................................................................... 2,400

Required:
Assuming that the company does not use reversing entries, what entry should be made on April 1, 20x8 when the
annual interest payment is received?

1.Assuming that the company does use reversing entries, what entry should be made on April 1, 20x8 when the annual
interest payment is received?

PROBLEM 3 ADJUSTING ENTRIES

The following data were obtained from analysis of the accounts of Noble Distributor Company as of March 31, 20x8, in
preparation of the annual report. Noble records current transactions in nominal accounts. What are the appropriate
adjusting entries on March 31, 20x8?

(a) Prepaid Insurance has a balance of P10,100. The company has the following policies in force:
Policy Date Term Cost Coverage
A 1/1/20x8 2 years P 3,600 Shop equipment
B 12/1/20x7 6 months 1,800 Delivery equipment
C 7/1/20x7 3 years 12,000 Buildings

(b) Unearned Subscription Revenue has a balance of P56,250. The following subscriptions were
collected in the current year. There are no other unexpired subscriptions.
Effective Date Amount Term
July 1, 20x7 P27,000 1 year
October 1, 20x7 22,200 1 year
January 1, 20x8 28,800 1 year
April 1, 20x8 20,700 1 year

(c) Interest Payable has a balance of P825. Noble owes a 10%, 90–day note for P45,000 dated March
1, 20x8.

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M i C P A R Review Center ACCOUNTING CYCLE ILLUSTRATION ǀ Page 2 of 2

(d) The Office Supplies account had a balance of P3,000. During the year, additional office supplies
were purchased for P3,800 and that amount was debited to Office Supplies Expense. On March 31 a
physical count of office supplies revealed that there was P3,400 on hand.

(e) Salaries Payable has a balance of P9,750. The payroll for the 5–day workweek ended April 3 totaled
P11,250.

PROBLEM 4 ANALYZING ADJUSTING ENTRIES

Computer Consulting Company initially records prepaid expenses as assets and unearned items as liabilities. Selected
account balances at the end of the current and prior year follow. Accrued expenses and revenues are adjusted only at
year–end.
Adjusted Balances Adjusted Balances
December 31, 20x8 December 31, 20x7
Prepaid Rent P3,600 P6,200
Salaries and Wages Payable 4,500 1,900
Contract Liability-Unearned Consulting Fees 6,400 16,400
Interest Receivable 1,800 650
During 20x8, Computer Consulting paid P10,000 for rent and P50,000 for wages. It received P108,000 for consulting
fees and P2,400 as interest.
Required:
1. Provide the entries that were made at December 31, 20x8, to adjust the accounts to the year–end balances
shown above.
2. Determine the amount of Rent Expense, Salaries and Wages Expense, Consulting Fees Revenue, and Interest
Revenue to be reported on the current–year income statement.

PROBLEM 5 INVENTORY ADJUSTING ENTRIES

Assume that Guardian Company uses a periodic inventory system and has these account balances: Purchases
P600,000; Purchase Returns and Allowances P25,000; Purchase Discounts P11,000; and Freight-in P19,000; beginning
inventory of P45,000; ending inventory of P55,000; and net sales of P750,000. Determine the cost of goods sold and
make the adjusting entry to set up the cost of goods sold account.

PROBLEM 6 INVENTORY ADJUSTING ENTRIES

Assume that RFI Company uses perpetual system. At the beginning of the year, the company reported Merchandise
Inventory of P300,000. During the year, the company made purchases of P800,000. Goods costing P850,000 were sold
during the year for P1,400,000. At December 31, a physical count of inventory reported P220,000 on hand.

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