Kier Paolo C. Legardo BSA 5.1 ACT 110 5.

1J

7-4 Problem on Accrual

For E. Gevera Realty Co.

Cash P XXXXX
Unearned Rent Income P XXXXX

Adjusted entry

Unearned Rent Income P XXXXX

Rent Income P XXXXX

For Metro Drug Company

Prepaid Rent P XXXXX

Cash P XXXXX

Adjusted entry

Rent Expense P XXXXX

Prepaid Rent P XXXXX

7-5 Problem on Deferrals

Assuming Expense method is used:
1.
Insurance expense P 24,000
Cash P 24, 000
2. Expense
3.
Prepaid insurance P 14,000
Insurance expense P 14,000
4. Decreasing

Assuming Asset method is used:

1.

Prepaid Insurance P 24,000

Cash P 24, 000
2. Asset
3.

Insurance Expense P 10,000

Prepaid Insurance P 10, 000
4. Decreasing

1. 7-6

Building
Prepaid Insurance P 12,000
Cash P 12,000
For 6 months
Adjusted entry
Insurance Expense P 6,000
Prepaid Insurance P 6,000
Truck
Prepaid Insurance P 6,000
Cash P 6,000
For 3 months
Adjusted entry
Insurance Expense P 1,500
Prepaid Insurance P 1,500
2. Building = Prepaid Insurance - Insurance expense
= P 12,000 - P 6,000
= P 6,000

Truck = Prepaid Insurance - Insurance Expense

= P 6,000 - P 1,500
= P 4,500

3.

Building
Prepaid Insurance P 12,000
Cash P 12,000
For 7 months
Adjusted entry
Insurance Expense P 7,000
Prepaid Insurance P 7,000
4.

Truck
Insurance Expense P 6,000
Cash P 6,000
For 3 months
Adjusted entry
Prepaid Insurance P 4,500
Insurance Expense P 4,500

7-7
Assuming that Income method is used:
1.

Cash P 180,000
Rent Income P 180,000
2. Income
3.

Unearned Rent Income P 135,000

Cash P 135,000
4. Decreasing

Assuming that Liability method is used:

1.

Cash P 180,000
Unearned Rent Income P 180,000
2. Liability
3.

Unearned Rent Income P 45,000

Rent Income P 45,000
4. Decreasing
 7-11
Problem on the Provision for Uncollectible Accounts
1. P 300,000 - P 4,000 = P 296,000
P 296,000 x 3% = P 8,880
2.

Bad Debts Expense P 8,880

Allowance for Bad Debts P 8,880
3. P 296,000 - 3% of 296,000
P 296,000 - 8,880 = P 287,120

4. P 296,000 x 5% = P 14,800

Bad Debts Expense P 14,800

Allowance for Bad Debts P 14,800

5. P 287,120 x 2% = P 5,742.4

Bad Debts Expense P 5,742.4

Allowance for Bad Debts P 5,742.4

7-12
1.
Collectible Rate 99% 98%
Receivable as Aged: 1-60 days 61-120 days

J. Japad Enterprises P 25,000 P 5,000

E. Claudel Trading 20,000 30,000
M. Poliran Merchandising 10,000 10,000

Estimated Uncollectible Accounts

1-60 days 61-120 days

J. Japad Enterprises P 250 P 100

E. Claudel Trading 200 600
M. Poliran Merchandising 100 200

2.
Total Estimated Uncollectible Accounts

J. Japad Enterprises P 350

E. Claudel Trading 800
M. Poliran Merchandising 300
TOTAL P 1,450

Bad Debts Expense P 450

Allowance for Bad Debts P 450

3. P 100,000 - P 1,000 - Allowance for Bad Debts

P 100,000 - P 1,000 - P 450 = P 98,550

7-13
1.

Bad Debts Expense P 70,000

Accounts Receivable P 70,000
 7-16
Problem on Provision for Depreciation
1.

Airconditioning Unit P 290,000

Cash P 290,000

2. Depreciation = cost - salvage value

Estimated life
= P 280,000 - P 10,000
10
= P 28,000

3. Oct. 1 to Dec. 31 = 3 months

Annual Depreciation x Time
P 28,000 x 3/12 = P 7,000

4.
For 3 months
Depreciation Expense P 7,000
Accumulated Depreciation-Airconditioning Unit P 7,000

5. Net Book Value = Historical Cost - Accumulated Depreciation

= P 290,000 - P 7,000
= P 283,000

7-17
1.
Property and Dates Acquisition Scrap Life in Depreciation
Equipment Acquired Cost Value Years Expense

Shop Oct. 1, 20A P 150,000 P 20,000 8 P 12,187.5

Equipment
Delivery Jan. 1, 20B 500,000 NONE 5 50,000
Truck
Building Nov. 30, 20A 950,000 P 50,000 10 52,500

2.
Shop P 137,812
Equipment
Delivery 450,000
Truck
Building 897,500

7-18
1.
Wrong Entry Correct Entry Correcting Entry
Cash P80,000 Cash P80,000 Lopez, Capital P80,000

Lopez, Capital P80,000 Notes Payable P80,000 Notes Payable P80,000

2.
Wrong Entry Correct Entry Correcting Entry
Rent Expense P20,000 Rent Expense P30,000 Rent Expense P10,000

Cash P20,000 Cash P30,000 Cash P10,000

3.
Wrong Entry Correct Entry Correcting Entry
Cash P16,000 Cash P16,000 Service P16,000
Revenue
Service P16,000 Accounts P16,000 Accounts P16,000
Revenue Receivable Receivable

4.
Wrong Entry Correct Entry Correcting Entry
Office Supplies P30,000 Office Supplies P20,000 Accounts P30,000
Receivable
Accounts P30,000 Accounts P20,000 Accounts P20,000
Receivable Payable Payable
Office 10,000
Supplies

7-19
Problem on Accruals of Income and Expense Arising from Issuance of Notes

A.

Notes Receivable P 240,000

Cash P 240,000

B.
P 240,000 x 10% = P 24,000

C. Principal + Interest
P 240,000 + P 24,000 = P 264,000

D. Nov. 16 - Dec. 16 = 1month

P 24,000 x 44/60 = P 17,600

E.

Cash P 193,600
Notes Receivable P 176,000
Interest Income 17,600