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Problems - Adjusting Entries

1. Commissions of P36,000 earned but not collected need to be recorded as an accrual. 2. Interest of P1,440 (18% of P80,000 for 60 days) needs to be recorded on the note receivable. Interest of P5,400 (18% of P300,000 for 60 days) needs to be recorded on the note payable. 3. Accrued expenses of P18,000 for salaries and P6,500 for utilities need to be recorded.

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779 views3 pages

Problems - Adjusting Entries

1. Commissions of P36,000 earned but not collected need to be recorded as an accrual. 2. Interest of P1,440 (18% of P80,000 for 60 days) needs to be recorded on the note receivable. Interest of P5,400 (18% of P300,000 for 60 days) needs to be recorded on the note payable. 3. Accrued expenses of P18,000 for salaries and P6,500 for utilities need to be recorded.

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Problem 1

Prepare the adjusting entries based on the given independent situations as of December 31,
2017:

ACCRUALS
1. Commissions already earned but not yet collected amounted to P36,000.
2. On December 31, 2017 there is a 60-day 18% note receivable received by the company on
December 1, 2017 for P80,000. No interest has been taken on this note.
3. On December 31, 2017 there is a 60- day 18% note payable to Metro Bank issued November
12, 2017 for P300,000. No interest has been taken on this note.
4. Expenses incurred but unpaid as of December 31, 2017 includes salaries of P18,000 and
utilities of P6,500.
DEFERRALS - Expense
5. The Prepaid Insurance account had a debit balance on December 31, 2017 of P72,000
representing premium for a 12-month fire insurance policy effective October 1, 2017.
6. A lease agreement was signed on September 1, 2017 for use of an office space for six
months, with P225,600 paid in advance, which the company debited to Rent Expense.
7. Office Supplies account has a balance of P24,800. As of December 31, 2017 office supplies
unused is P9,600.
8. Supplies costing P16,000 bought during the period was debited to the account Supplies
Expense of which P13,000 were consumed during the period.
DEFERRALS - Income
9. Service Income account showed a credit balance of P52,000 per general ledger as of year
end. Of this only 40% has been actually earned during the current period.
10. Unearned Rent Income was credited for P96,000 on October 1, 2017 representing 6 months
rent collected in advance.
DEPRECIATION
11. An Equipment acquired on June 1, 2017 with a cost of P100,000 had been recorded in the
books. Estimated life of equipment is 5 years with estimated salvage value of P10,000.
12. Machine account per general ledger as of December 31, 2017 shows a balance of P372,000.
Machine acquired during the period (on October 1, 2017) was P52,000. All machine is to be
depreciated at a rate of 20% per annum.
IMPAIRMENT OF RECEIVABLES
13. At December 31, 2017, the company estimated that 10% of its outstanding accounts
receivable of P750,000 will be uncollectible. ( Assume the company started operation in
2017)
14. At December 31, 2017 ( first year of operation) , the company’s total receivables amounted
to P750,000. Management classified its receivables according to age as follows:

Classification Amount % of Collectability

Not yet due P320,000 98%


1 – 30 days past due 60,000 96%
31- 60 days past due 120,000 94%
61- 90 days past due 150,000 92%
Over 90 days 100,000 90%
Total P750,000
========

15. The following account balances are given as of December 31, 2017:

Accounts Receivable P720,000


Allowance for Impairment Loss 60,000

It was agreed that uncollectible accounts are estimated to be equivalent to 15% of


outstanding accounts receivable.
Problem 2
For each of the following information pertaining to Von Company, a fiscal-year company,
prepare the necessary adjusting entries as of May 31,2017.

1. Von Company entered into a lease agreement with Carmel Company on November 1, 2016,
for the rental of office space for the next 24 months for P312,000. All rent payments for this
lease was paid when due at the end of each month. A second lease agreement was signed
on February 1, 2017 for use of a warehouse for six months, with P112,800 paid in advance,
which Von debited to Rent Expense.
2. On May 31, 2016, the Office Supplies account had a debit balance of P21,300. Office
supplies in the amount of P82,600 were purchased during the year. A count of office
supplies on hand on May 31, 2017 totalled P15,850.
3. On December 1, 2016, Von Company acquired a new printer for P179,200. It is estimated
that the printer will have a useful life of 4 years with a P7,200 residual value.
4. Von Company borrowed P2,500,000 from Clarence Lending Inc. on February 28, 2017, and
issued a note for the loan. The note carries a 20% annual interest rate and will be due one
year from the date of issue.
5. On October 1, 2016, Von Company paid P32,400 for 6-months' worth of insurance. The
transaction was debited to Prepaid Insurance. No entry was made to adjust the account at
the end of the period.
6. On February 1, 2017, Von Company received P91,200 from Wyeth Inc., a customer, for
services to be rendered during the months of February, March, April, May and June , 2017.
The whole amount was credited to Service Fee Income.
7. Von Company also acquired additional equipment worth P75,600 on April 1, 2017. The
equipment is expected to last five years, after which it will be worthless. The accountant
failed to record this transaction.
8. Accounts receivable has a balance of P600,000 and the Allowance for Doubtful Accounts is
P50,000. It is estimated that 12% of Accounts Receivable is considered uncollectible.
9. Unearned Service Income was credited for P48,000 on April 1, 2017 representing services
to be rendered for six (6) months.
10. Advertising contract is recorded at P62,500 as Prepaid Advertising. This is a 10-month
contract signed in February 1, 2017.
Problem 3

The following data were gathered in analysing the accounts of Strong Rock Company at
December 31, 2017, the end of its accounting period. Prepare the necessary adjusting
entries.

a. Supplies account shows a balance of P31,250. On December 31 supplies of P10,625 are


on hand.
b. The company pays all employees every Friday. The total payroll for five-day workweek
ending January 3, 2018 is P100,000.
c. On November 1. 2017, the company leased a portion of its space and received P33,750,
representing three-month rent beginning on that date. The amount received was
credited to Rent Revenue.
d. It is estimated that 2% of the accounts receivable at the end of the year is uncollectible.
Accounts Receivable balance at December 31,2017 is P562,500. The allowance for
Uncollectible Accounts shows a credit balance before adjustment of P3,750.
e. On December 1, the company issued a 90-day, 12% note for P250,000. The interest on
the note is payable on maturity. ( Use 360-day year)
f. An analysis of the company’s insurance policies indicates that the Prepaid Insurance
account is to be reduced for the P6,600 of expired insurance.
g. On September 1, 2017, Rent expense was debited for P225,000 representing rental for a
six-month period beginning on that date.
h. The company purchased office equipment on March 1,2017 costing P500,000. The
assets have an estimated useful life of 5 years and salvage value of P50,000.
i. An assessment of accounts receivable indicates a need for an Allowance for Impairment
Loss at 5% of the Accounts Receivable balance at December 31, 2017 at which date the
reported balance is P812,500. The Allowance for Impairment Loss account shows a debit
balance before adjustment of P18,750.
j. The company holds a P75,000, 12%, 6-month note receivable dated October 1, 2017
from a customer. The interest is collectible on maturity date.

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