University of Santo Tomas

Alfredo M. Velayo College of Accountancy

Hand-out in Basic Accounting
Adjusting Entries
2012-2013

Name:___________________________________________________________Section:___________

Accrued Revenue- Earned but not yet billed at the end of the period.
Accrued Expense- Incurred but not yet paid at the end of the period.
Unearned/Deferred Revenue- Billed but not yet earned at the end of the period.
Prepaid Expense- Paid but not yet incurred at the end of the period.
Depreciation Expense- systematic allocation of the depreciable amount of an asset
over its useful life
Bad debts Expense- account has become uncollectible as of the year end

Problems

1. Queenie Company had the following long-term receivable account balances at

December 31, 2011:

Notes Receivable from May Company 3,000,000

Notes Receivable from officer 1,500,000

Transactions during 2012 and other information relating to Queenie’s long-term

receivables were as follows:

 The P3,000,000 note, dated October 1, 2011 bears interest at 10%.

Principal payments of P1,000,000 plus appropriate interest are due on
October 1, 2012, 2013 and 2014. The first principal and interest payment
was made on October 1, 2012.

 The P1,500,000 note is dated January 1, 2011, bears interest of 8% and is

due on January 1, 2014. Interest is payable annually on December 31 and
all interest payment were made on their due dates.

 On January 1, 2012, Queenie sold one of its divisions to AJ Company for

P1,000,000 under an installment sale contract. AJ made a P370,000 cash
down payment on the same date and signed a five-year, 12% note for the
P630,000 balance. The equal annual payments of principal and interest on
the note will be P175,000 payable on January 1, 2013 through January 1,
2017.

What is the accrued interest receivable on December 31, 2012 arising from the
foregoing data? P125,600

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JPIA Aaron Joshua S. Bernardino, CPA
2. On October 1, 2012, Dez Co. borrowed a 1-year note amounting P300,000 from a
bank. The interest rate for this note is 12% payable at the maturity date.

What is the adjusting entry at year end and what will be the entry on September 30,
2013? P9,000

3. Denise Co. had the following notes payable account balances at December 31,
2011:

Notes Payable from Aisha Company 5,000,000

Notes Payable from JCAs 2,000,000

Transactions during 2012 and other information relating to Denise’s long-term

payables were as follows:

 The P5,000,000 note, dated July 1, 2011 bears interest at 8%. Principal
payments of P500,000 plus appropriate interest are due semi-annually.
The first principal payment was made on July 1, 2011 and interest
payment was made on Dec 31, 2011.

 The P2,000,000 note is dated April 1, 2011, bears interest of 10% and is
due on April 1, 2013. Interest is payable annually and all interest payment
were made on their due dates.

 On August 1, 2012, Denise Co. purchased an equipment from Kim

Company for P3,000,000 under an installment sale contract. Denise made
a P600,000 cash down payment on the same date and signed a two-year,
12% note for the remaining balance. The equal semi-annual payments of
principal and interest on the note will be paid on Jan 31, 2013 through
August 1, 2016.

 On March 1, 2011, Denise Co. purchased a machine with a cash price of

P200,000. Cash paid at the time of purchase is P50,000 and the balance is
payable in three equal annual payments with interest at 10% on the
unpaid balance. Interest is payable annually.

What is the accrued interest payable on December 31, 2012 arising from the
foregoing data? P573,333

4. Yana Co. collected P15,000 interest during 2012. It showed P2,000 interest
receivable on its December 31, 2012, balance sheet and P6,000 on December 31,
2011.
The interest revenue on the income statement for 2012 amounted to? P11,000

5. Burgundy Company pays all salaried employees on a biweekly basis. Overtime

pay, however, is paid in the next biweekly period. Burgundy Company accrues
salaries expense only at its June 30 fiscal year end. Data relating to salaries
earned in June 2012 were as follows:

 Last payroll was paid on June 26, 2012 for the two-week ended June 26,
2012.
 Overtime pay earned in the two-week period ended June 26, 2012 was
P42,000
 Remaining work days in June 2012 were June 28, 29, and 30 on which
there was no overtime.

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JPIA Aaron Joshua S. Bernardino, CPA
  The recurring biweekly salaries total P750,000

Assuming a five-day work week, Burgundy should report a liability at June 30,
2012 for accrued salaries of? P267,000

6. Cha Company’s fiscal year ended on July 31, 2012. There has been no
adjustment as of the fiscal year.
The balance of the unadjusted prepaid insurance account as of July 31, 2012 was
P37,000. The following data are recorded:

Insurance # Date of Purchase Date of Expiration Balance

123456 February 1, 2011 January 31, 2015 100,000
445728 March 1, 2012 February 28, 2014 48,000
900123 June 1, 2009 May 31, 2012 20,000

What is the amount to be recognized as expense for the end of fiscal year? Prepare
the adjusting entries. P67,500

7. On April 31, 2012, AJ Co. paid an advance rent of P300,000 for the apartment to
be occupied for 6 years starting June 1, 2013.

How much is the rent expense for the fiscal year October 31, 2013? P20,833
How much is the balance of the prepaid rent on October 31, 2014? P229,167

8. On Jan 1,2012, Kim Co. supplies amounted to P2,500. During the year, the
company purchased P1,200 worth of supplies. Because of some defects, they
returned P300 to the suppliers. At year end, the supplies amounted to P1,800.

What is the amount of supplies expense? P1,600

9. Cha Co. avail a insurance policy for P12,000 that will last for 2 years. Cha Co.
purchased the said amount on August 1, 2012.

By what amount should Cha Co. deduct its expense on December 31, 2012 if the
company uses Expense Method? P9,500
What is the amount of the adjustment if the company uses Asset method? P2,500

10. Jax uhuh Co. rents and leases its buildings under different rental agreements
involving advance monthly rental payments or annual payments. Not all tenants
pay their rent on time.
The balance sheet of the company contained the following accounts:
2011 2012
Rent Receivable 500,000 530,000
Unearned Rent 1,320,000 670,000

During 2012, the company reported a P2,700,000 cash collections from tenants.

What amount of Rent Revenue should the company report in its financial
statements? P3,380,000

11. In November and December 2012, Belle Company, a newly organized magazine
publisher, received P720,000 for 100, three-year subscriptions at P2,400 per year,
starting with the January 2013 issue. Belle elected the entire P720,000 in its
2012 income tax return.

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JPIA Aaron Joshua S. Bernardino, CPA
 What amount should Belle report in its December 31, 2012 statement of financial
position as unearned subscription revenue? P720,000

12. Apachi Company must determine the December 31, 2012 year-end accruals for
advertising and rent expenses. A P50,000 advertising bill was received on January
7, 2013, comprising of P37,500 for advertisements in December 2012 and
P12,500 for advertisements in January 2013 issued of the newspaper.

A store lease effective December 1, 2012 calls for a fixed rent of P120,000 per
month payable at the beginning of each month. In addition, rent equal to 5% of
net sales over P3,000,000 per month is payable on the 20th day of the following
month. Net sales for December were P5,500,000.

In its December 31, 2012 statement of financial position, Apachi should report
accrued liabilities of? P162,500

13. On June 1, 2012, Bench Company received P900,000 from Matt Co. for payments
for the service to be rendered on September 1, 2012. The performance will cover a
five-year period. The company uses calendar year.

By what amount should the Unearned Revenue be decrease if the company uses
Liability method? P60,000
What is the amount of revenue to be recognized at the end of the year? P60,000

14. The Jessica Co. acquired a drilling machine on October 1, 2008 at a cost of
P25,000 and depreciated it at a 25 % per annum on a straight line basis. On
October 1, 2010, P5,000 was spent on an upgrade to the machine in order to
improve its efficiency and increase the inflow of economic benefits over the
machine’s remaining life.

What depreciation expense should be recognized in profit or loss for the year
ended September 30, 2011? P8,750

15. Prada Company purchased a computer hardware on July 1, 2012 for P400,000
The economic life and residual value are estimated to be 5 years and P40,000
respectively. The straight line method is used. In January 2013, due to advances
in technology, the company adjusted its estimate to a three-year total life and
residual value of P10,000.

What is the depreciation expense for 2013? P141,600

16. On January 1, 2009, Arden Company purchased for P132,000 a machine to be

depreciated by the straight-line method over an estimated useful life of eight
years, without salvage.

On January 1, 2012, Arden determined that the machine has a useful life of six
years from the date of acquisition without salvage value. An accounting change
was made in 2012 to reflect this data.

What is the accumulated depreciation balance at December 31, 2012, after the
appropriate adjusting entry was made? P77,000

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JPIA Aaron Joshua S. Bernardino, CPA
17. The company purchased equipment on July 1, 2009. The equipment cost
P500,000 and has a salvage value of P50,000 with a useful life of 10 years.

a.
What is the depreciation expense for December 31, 2009? P22,500
What is the depreciation expense for December 31, 2011? P45,000
What is the accumulated depreciation for December 31, 2012? P157,500
What is the carrying value for December 31, 2015? P207,500
What is the gain or loss if the equipment was sold for P250,000 on December
31,2015? P42,500

b.
If the fiscal year end is April 30, 2009, what is the depreciation expense? P37,500
What is the book value in April 30, 2010? P417,500
What is the accumulated depreciation for April 30, 2013? P217,500
What is the gain or loss if the equipment was sold for P200,000 on April 30,
2013? (P17,500)

c.
What is the accumulated depreciation for September 30, 2013? P191,250
What is the carrying value of the equipment in September 30, 2014? P263,750

18. The following were taken from Lakers Company’s unadjusted trial balance at
December 31, 2012:

Dr Cr
Accounts Receivable 1,000,000
Allowance for uncollectible accounts 8,000
Net Credit sales 3,000,000

Lakers estimates that 3% of the gross accounts receivable will become

uncollectible.

After adjustment at December 31, 2012, the allowance for bad debts should have
a credit balance of? P30,000
Bad debts expense for the year ended December 31, 2012? 38,000

19. On January 1, 2012, Bulls Co. had Accounts Receivable and Allowance for Bad
Debts of P160,000 and P12,000 respectively. Sales(all on credit) during 2012
amounted to P1,800,000. Accounts of P7,000 written off during the year. Analysis
of accounts receivable at December 31, 2012 revealed the following:

Age Amount Estimated Uncollectible

0-60 days 120,000 1%

61-120 days 90,000 2%
Over 120 days 100,000 6%

There are no other transactions affecting accounts receivable.

How much cash is collected from customers during 2012? P1,643,000

What is Bulls Bad debt expense for 2012? P4,000
What is the net realizable value of A/R at December 31, 2012? P301,000

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JPIA Aaron Joshua S. Bernardino, CPA