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    To Accrue Advertising Expense: I PXRXT

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    Shane Nayah
    Entity A is preparing its December 31, 20x1 financial statements and needs to record several year-end adjusting entries. These include: 1) accruing advertising expense for December, 2) accruing interest receivable on a note, 3) recording depreciation expense on a newly acquired machine, 4) establishing an allowance for doubtful accounts on accounts receivable, and 5) accruing salaries expense for employee work performed but not yet paid in December.

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    To Accrue Advertising Expense: I PXRXT

    Uploaded by

    Shane Nayah
    27K views6 pages
    Entity A is preparing its December 31, 20x1 financial statements and needs to record several year-end adjusting entries. These include: 1) accruing advertising expense for December, 2) accruing interest receivable on a note, 3) recording depreciation expense on a newly acquired machine, 4) establishing an allowance for doubtful accounts on accounts receivable, and 5) accruing salaries expense for employee work performed but not yet paid in December.

    Original Title

    Adjusting Entries

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    Entity A is preparing its December 31, 20x1 financial statements and needs to record several year-end adjusting entries. These include: 1) accruing advertising expense for December, 2) accruing interest receivable on a note, 3) recording depreciation expense on a newly acquired machine, 4) establishing an allowance for doubtful accounts on accounts receivable, and 5) accruing salaries expense for employee work performed but not yet paid in December.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    27K views6 pages

    To Accrue Advertising Expense: I PXRXT

    Uploaded by

    Shane Nayah
    Entity A is preparing its December 31, 20x1 financial statements and needs to record several year-end adjusting entries. These include: 1) accruing advertising expense for December, 2) accruing interest receivable on a note, 3) recording depreciation expense on a newly acquired machine, 4) establishing an allowance for doubtful accounts on accounts receivable, and 5) accruing salaries expense for employee work performed but not yet paid in December.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 6
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    The document discusses various year-end adjusting entries such as accrued expenses, prepaid expenses, depreciation, etc.

    Adjusting entries are given for accrued advertising expense, accrued interest receivable, depreciation expense, accrued salaries, accrued interest payable, accrued utilities, and supplies expense.

    Examples include accruing interest income on a note receivable, accruing interest expense on a note payable, accruing salaries expense for overtime work, and recognizing depreciation expense.

    Use the following information for the next four questions: Entity A is preparing its December 31,

    20x1 financial statements. Provide the year-end adjusting entries for the following.

    1. Entity A entered into a 1-year contract for a billboard advertising on August 1,20x1. The
    monthly rent for the billboard is P200,000, payable at the start of each month. Entity A has paid
    the rentals for the months of August to November 20x1.

    Step 1: Transaction analysis

    Accounts affected: “Advertising Expense” (expense) and “Advertising Payable” (liability)


    Effects on accounts: Advertising Expense is increased, Advertising Payable is increased
    Debit / Credit: Expense is increased through debit. Liability is increased through credit
    Dec 31, 20x1 Advertising Expense 200,000
    Advertising Payable 200,000
    to accrue advertising expense

    Step 2: Adjusting journal entry (AJE)

    2. Entity A received a 10% P180,000, 1-year, note receivable from a customer on October 31,
    20x1. Both principal and interest on the note are due on November 1, 20x2.

    Formula:

    I=pxrxt

    Interest = (180,000 x 10% x 3/12) = P4,500

    Step 1: Transaction analysis

    Accounts affected: “Interest Receivable” (asset) and “Interest Income” (income)


    Effects on accounts: Interest receivable is increased, Interest income is increased
    Debit / Credit: Asset is increased through debit. Income is increased through credit

    Dec 31, 20x1 Interest Receivable 4,500


    Interest Income 4,500
    To accrue interest income earned but not yet collected
    Step 2: Adjusting journal entry (AJE)
    Adjusting entry for the accrued interest income:
    3. Entity A acquired a machine on November 30, 20x1 for P420,000. The machine has an
    estimated useful life for 8 years.

    Formula:
    Cost P420,000
    Divide by: Useful life 8
    Annual depreciation expense P52,500

    Step 1: Transaction analysis

    Accounts affected: “Depreciation Expense” (expense) and “Accumulated Depreciation”


    (contra-asset)
    Effects on accounts: Depreciation expense is increased, Accumulated depreciation is
    increased
    Debit / Credit: Expense is increased through debit. Contra-asset is increased through
    credit

    Step 2: Adjusting journal entry (AJE)

    Dec 31, 20x1 Depreciation Expense 52,500


    Accumulated Depreciation 52,500
    To record the depreciation expense for the period

    4. Entity A has a total accounts receivable of P890,000 as of December 3, 20x1. Of that amount,
    P45,000 were estimated to be doubtful of collection.

    Accounts affected: “Bad debts expense” (expense) and “Allowance for bad debts” (contra-
    asset)
    Effects on accounts: Bad debts expense is increased, Allowance for bad debts is increased
    Debit / Credit: Expense is increased through debit. Contra-asset is increased through
    credit
    Step 1: Transaction analysis

    Step 2: Adjusting journal entry (AJE)

    Dec 31, 20x1 Bad debts expense 45,000


    Allowance for bad debts 45,000
    to record the bad debts expense for the period

    Accounts receivable P890,000


    Allowance for bad debts (45,000)
    Accounts receivable – net P845,000

    5. On May 1, 20x1, Entity B received one-year advanced rent of P480,000 from one of its
    tenants. The advanced rent covers the month of May 1, 20x1 to April 30, 20x2.

    a. Provide the journal entry to record the collection on May 1, 20x1 under each of the following
    methods:

    i. Liability method

    May 1, 20x1 Cash 480,000


    Unearned Rent 480,000
    to record the receipt of 1-year rent in advance

    ii. Income method

    May 1, 20x1 Cash 480,000


    Rent Income 480,000
    to record the receipt of 1-year rent in advance

    b. Provide the adjusting entries on December 31, 20x1 under each of the following methods
    listed above:

    i. Liability method

    Dec 31, 20x1 Unearned Rent 320,000


    Rent Income 320,000
    to recognize the earned portion of rent income

    ii. Income method

    Dec 31, 20x1 Unearned Rent 160,000


    Rent Income 160,000
    to recognize the portion of unearned the 1-year rent
    in advance

    6. On August 1, 20x1, Entity C paid one-year insurance of P360,000

    a. Provide the journal entry to record the prepayment on August 1, 20x1 under each of the
    following methods:

    i. Asset method
    Aug 1, 20x1 Prepaid Insurance 360,000
    Cash 360,000
    to record the one-year insurance prepayment

    ii. Expense method

    Aug 1, 20x1 Insurance Expense 360,000


    Cash 360,000
    to record the one-year insurance prepayment

    b. Provide the adjusting entries on December 31, 20x1 under each of the following methods
    listed above.

    i. Asset method

    Dec 31, 20x1 Insurance Expense 150,000


    Prepaid Insurance 150,000
    to recognize the used portion insurance expense

    ii. Expense method

    Dec 31, 20x1 Prepaid Insurance 210,000


    Insurance Expense 210,000
    to record the unused portion of 1-year insurance

    Company D has 100 employees, each earning an average daily rate of P600. Company D’s last
    salary payment date in 20x1 was on December 27, 20x1. However, 25 employees were required
    to render overtime work during the last three days of December 20x1. The compensation for the
    overtime work, which was considered “double-pay”, was paid during the first week of January
    20x2. What is the adjusting entry on December 31,20x1?

    Dec 31, 20x1 Salaries Expense 75,000


    Salaries Payable 75,000
    to accrue salaries expense

    2. Entity Z received a 10%, P1,000,000, one-year, note from a customer on August 1, 20x1. Both
    the principal and interest on the note are due at maturity date. What is the adjusting entry on
    December 31, 20x1? (Round-off amounts to two decimal places)

    Formula:

    I=pxrxt

    I = (1,000,000 x 10% x 5/12) = P41,666.67


    Dec 31, 20x1 Interest Receivable 41,666.67
    Interest Income 41,666.67
    to accrue interest income earned but not yet
    collected

    3. ABC company issued a 12%, P350,000, one-year, note payable on May 1, 20x1. ABC
    company uses a calendar year period. The principal and interest on the note are due on May 1,
    20x2. What is the adjusting journal entry on December 31, 20x1?

    Formula:

    I=pxrxt

    I = (350,000 x 12% x 8/12) = P28,000

    Dec 31, 20x1 Interest Expense 28,000


    Interest Payable 28,000
    to accrue interest expense incurred but not yet paid

    4. Entity A received billing for mobile charges and internet fees for the month of December 20x1
    totaling P13,000. Prior to payment, what is the entry to record the receipt of billing?

    Dec, 20x1 Utilities Expense 13,000


    Accounts Payable 13,000
    to record the receipt of billing

    5. On March 31, 20x1, Company 1 acquires a pickup truck for P1,600,000. The truck has an
    estimated useful life of 5. What is the adjusting entry on December 31, 20x1 to take up
    depreciation expense?

    Annual depreciation expense is computed as:


    Cost P1,600,000
    Divide by: Useful life 5
    Annual depreciation expense P320,000

    Dec 31, 20x1 Depreciation Expense 320,000


    Accumulated Depreciation 320,000
    to record the depreciation expense for the period

    6. Entity A’s unadjusted trial balance as of December 31, 20x1 shows “Prepaid Supplies” of
    P34,000. The year-end physical count of supplies revealed unused supplies amounting to P8,000.
    What is the adjusting entry?
    Dec 31, 20x1 Supplies Expense 24,000
    Prepaid Supplies 24,000
    to recognize the used portion of supplies
    7. Entity X unadjusted trial balance as of December 31, 20x1 shows “Supplies Expense” of
    P34,000. The year-end physical count of supplies revealed unused supplies amounting to P8,000.
    What is the adjusting entry?

    Dec 31, 20x1 Prepaid Supplies 8,000


    Supplies Expense 8,000
    to recognize the unused portion of supplies

    8. Entity A’s unadjusted trial balance as of December 31, 20x1 shows accounts receivable of
    P340,000 and no allowance for bad debts. Entity estimates that 3% of the accounts are doubtful
    collection. What is the adjusting entry?

    Dec 31, 20x1 Bad debts expense 10,200


    Allowance for bad debts 10,200
    to record the bad debts expense for the period

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