Adjustments

Sample Problems
Mukhang mapapa 1. Correcting Entries
"Grades doesn't define
who you are" ako this 2. Reclassifying Entries
sem ah
-BSA 3. Adjustments
Student(2020)
 1.
Reclassifying and
Correcting
Entries
1. Which of the following is true regarding reclassifying
entries?
a. It is made to c o r re c t a n e r ro r i n t h e a m o u n t
b. It is made at December 31
c. It is made to c o r re c t t h e w ro n g j o u r n a l e n t r y
d. It is made to c o r re c t e r ro r s re g a r d i n g w ro n g a c c o u n t t i t l e
Answer: D
2. Which of the following is false regarding the reclassifying
entries?
a. It is done to correct errors in the journal entry
b. It is done to correct an incorrect entry
c. It involves at-least one nominal and one real account
d. None of the above is false
Answer: C
3. Which of the following is subject to reclassifying entries?
a. Wrong amount
b. Items that involves transposition, sliding and omission error
c. Wrong account title and wrong amount
d. Wrong account title
Answer: D
4. Which of the following is true regarding correcting entries?
a. it involves always one nominal and one real account
b. it is done at year end
c. It is done to record transaction that already happened but is still unrecorded as of the
year end
d. All of the above is true
Answer: B
5. Correcting and Reclassifying Entries
a. Are made to correct the amount in the journal entry
b. Are made to correct the account title in the journal entry
c. Are made to correct an incorrect journal entry
d. Are made to effect transactions that already happened but is still unrecorded
Answer: C
6. During the year, the entity purchase an equipment amounting to P1,000,000 on account. After some time,
the entity paid half of the amount.
The journal entry made was
At date of purchase At date of payment
Equipment 1,000,000 No Entry
Cash 1,000,000
What is the correcting entries to be made by the entity ?
a. Debit Cash 1,000,000 Credit Accounts Payable 1,000,000 Adjustments
b. Debit Cash 500,000 Credit Accounts Payable 1,000,000 Cash 500,000
c. Debit Cash 500,000 Credit Accounts Payable 500,000 Accounts Payable 500,000
d. Debit Accounts Payable 500,000 Credit Cash 500,000 Answer: C

Effect of the wrong journal entry

Right effect of the transaction
Cash Equipment Accounts Payable
Cash Equipment Accounts Payable
Date of transaction (1,000,000) 1,000,000 -
Date of transaction - 1,000,000 1,000,000
Date of Payment - - - _
Date of Payment (500,000) - (500,000)
Total Effect (1,000,000) 1,000,000 -
Total Effect (500,000) 1,000,000 500,000
Cash Equipment Accounts Payable
Right effect of the transaction (500,000) 1,000,000 500,000
Effect of the wrong journal entry 1,000,000 (1,000,000) - _
Adjustments 500,000 - 500,000
7. During the year, the entity purchase a land amounting to P1,000,000 on account. After some time, the
entity paid the whole amount
The journal entry made was
At date of purchase At date of payment
Equipment 1,000,000 Cash 1,000,000
Income 1,000,000 Accounts Receivable 1,000,000
What is the correcting entries to be made by the entity ?
Right effect of the transaction Effect of the wrong journal entry
Cash Land Equipment A/R Income A/P Cash Land Equipment A/R Income A/P
Date of transaction - 1,000,000 - - - Date of transaction - 1,000,000 1,000,000 -
1,000,000 Date of Payment 1,000,000 - - (1,000,000) _
Date of Payment (1,000,000) - (1,000,000) Total Effect 1,000,000 - 1,000,000 (1,000,000) 1,000,000 -
Total Effect (1,000,000) 1,000,000 Cash- Land
- Equipment
- A/R
- Income Accounts Payable
Right effect of the transaction (1,000,000) 1,000,000 - - - -
Effect of the wrong journal entry (1,000,000) 0 (1,000,000) 1,000,000 (1,000,000) - _
Adjustments (2,000,000) 1,000,000 (1,000,000) 1,000,000 (1,000,000) -
Adjustments
Land 1,000,000
Income 1,000,000
A/R 1,000,000
Equipment 1,000,000
Cash 2,000,000
 2.
Adjusting Entries
For Accruals
1. Which of the following is false when it comes to recording of
Accrued Interest as part of accrual adjusting entries
a. Interest is computed as Principal x Rate x Time
b. Principal is the entire debt, and serves as the basis of the interest
c. Interest expense is credited in the adjusting entries
d. Interest payable will increase after the adjusting entries
Answer: C
2. Which of the following is true when it comes to interest?
a. Interest is per annum unless otherwise stated
b. Adjusting entries for interest are done at year end
c. The denominator in computing the interest is always 12
d. Both A and B only
Answer: D
3. On May 1,2020, the entity issued a note for a purchase of Land amounting to
P4,000,000. The interest is 12% per annum. The notes and the interest are payable on May
1,2022 . 800,000
a. What is interest payable for the year 2021? 320,000, 480,000, and 160,000
b. What is the interest Expense for the year 2020,2021Zero and 2022?
c. What is the interest payable on December 31,2022? May 1, 2022
December 31, 2021
December 31, 2020 May 1, 2022
Computation: 4,000,000 x 12% x 8/12 4,000,000 x 12% x 12/12 4,000,000 x 12% x 4/12 Interest Payable 800,000
May 1, 2020
Principal x Rate x Time = Interest Income/Expense Interest Expense = 320,000 Interest Expense = 480,000 Interest Expense = 160,000 Cash 800,000
Principal = 4,000,000 Land 4,000,000 To record payment of interest
Interest Expense 480,000 Interest Expense 160,000
Rate = 12% per year Notes Payable 4,000,000Interest Expense 320,000
Time= 8 months on 2020 To record purchase of land Interest Payable 320,000 Interest Payable 480,000 Cash
May 1, 2022
12 months on 2021 160,000
Notes Payable 4,000,000
4 months on 2022 To record payment of interest
December 31, 2020 December 31, 2021 December 31, 2022 Cash 4,000,000
Interest Payable 320,000 Beg. Interest Payable 320,000 Beg. Interest Payable 800,000 To record payment of notes
Interest Expense 320,000 Interest Payable 2021 480,000 Payment in 2022 800,000
End Interest Payable 800,000 End Interest Payable -

Beg. Interest Expense 0 Interest Expense 160,000

Interest Expense 480,000
Total Interest Expense 480,000
4. Which of the following is true regarding the adjustments for
Salaries?
a. Salaries are recorded when paid
b. Accrued salaries are salaries already paid but not yet incurred
c. Recording of accrued salaries will increase the total assets
d. Recording of accrued salaries will increase total expense
Answer: D
5. Adjustments for Salaries will
a. Increase total expense and total income
b. Increase total expense and will decrease total assets
c. Increase total expense and total liability
d. Increase total income and total asset
Answer: C
6. An item represents services received by the firm for which it will
pay for in the future is called
a. An accrued revenue
b. An unearned revenue
c. A prepaid expense
d. An accrued expense
Answer: D
7. An item that represents services provided by a firm for which it
will receive payment in the future is called
a. Prepaid Expense
b. An accrued expense
c. An accrued income
d. An unearned income
Answer: C
8. An entity paid P5,000 salary per week per employee, the payroll period is
every Friday. Assuming that December 31, falls on Wednesday. Compute for
the accrued salaries during the year if an employee has 10 employee. Assume a
5-working day per week
5,000 per week/ 5 days = 1,000 per day
Number of unpaid days = 3 days
1,000 x 3 days x 10 employee = 30,000 accrued salaries
9. If an entity pays P3,000 per day per employee. Compute the accrued salaries
if the entity has a .5 unpaid month, assuming that they have 20 employees that
works for 25 days per month
3,000 per day x 25 days per month = 75,000 salaries per month
Number of unpaid months = .5 or ½ month 3,000 per day
75,000 x .5 months x 20 = 750,000 accrued salaries Number of unpaid days = .5 months x 25 days = 12.5 days
3,000 x 12.5 days x 20 = 750,000 accrued salaries
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 3.
Adjusting Entries
For Deferrals
1. Deferred revenues should be reported as
a. Contributed capital on the balance sheet
b. Expenses on the income statement
c. Income on the income statement
d. Liabilities on the balance sheet
Answer: D

2. A deferred expense should be recorded when

a. An expense is incurred as cash is paid
b. A non-cash resource is consumed after cash is paid
c. A service is rendered before payment of cash
d. Cash is paid before an expense has been incurred
Answer: D
3. Which of the following is true about deferral adjusting entries?
a. It is done to correct a wrong journal entry
b. It is done to record transactions that already happened but is still unrecorded
c. It is done at December 31
d. It is done to delay a recognition of an item that is already recorded in the books
Answer: D

4. A deferred revenue should be recorded by a

a. Buyer when service is received on payment of cash
b. Seller when a service is rendered before receipt of cash
c. Seller when a customer pays for a service before the service is rendered
d. Seller when a service is rendered on receipt of cash
Answer: C