ACCO Module 4 - The Bachelor of Science in Industrial Engineering (BSIE) is a five-year baccalaureate PDF

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Accounting Principles Module 4 – Adjusting EntriesExercise 4-Quick Company paid P 25,920 premium on a three-year insurance policy on September 1, 2019. The effectivity of the policy begins on September 1, 2019. Assuming the cash basis of accounting, how much of the premium will appear as an expense ...

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Accounting Principles Module 4 – Adjusting Entries Exercise 4-1 Quick Company paid P 25,920 premium on a three-year insurance policy on September 1, 2019. The effectivity of the policy begins on September 1, 2019. 1. Assuming the cash basis of accounting, how much of the premium will appear as an expense on the annual statement of comprehensive income for year 2019? For 2020? For 2021? For 2022? 2. Assuming the cash basis, how much of the premium will appear as an asset on each December 31 statement of financial position for the year 2019? For 2020? For 2021? For 2022? 3. Assuming the accrual basis of accounting, how much of the premium will appear as an expense on the annual statement of comprehensive income for the year 2019? For 2020? For 2021? For 2022? 4. Assuming the accrual basis, how much of the premium will appear as an asset on each December 31 statement of financial position for the year 2016? For 2017? For 2018? For 2019?

1.

2019 P 25,920

2020 P0

2021 P0

2022 P0

2.

P0

P0

P0

P0

3.

P 2,880

P 8,640

P 8,640

P 5,760

4.

P 23,040

P 14,400

P 5,760

P0

Exercise 4-2 Determine the amounts indicated by question marks in the columns below. Consider each column a separate problem. Make the adjusting entry for column (a) assuming supplies purchased are debited to an asset account.

Supplies on hand, August 1 Supplies purchased during the month Supplies consumed during the month Supplies remaining on August 31

(a)

(b)

P 264 52 194 (?)

P 434 (?) 972 436

(c) P 196 174 (?) 56

(d) (?) 1,928 1,632 1,188

a. 264 + 52 – 194 = P 122 b. 434 – (972 + 436) = P 974 c. 196 + 174 – 56 = P 314 d. 1,928 – (1,928 + 1,188) = P 892 Exercise 4-3 Classify the following items as (a) deferred expense (prepaid expense), (b) deferred revenue (unearned revenue), (c) accrued expense (accrued liability), or (d) accrued revenue (accrued asset). Use CAPITAL LETTERS. A C C C C B B D A B D A D A A

1. A two-year premium paid on a fire insurance policy 2. Electric bill owed but not yet paid 3. Office Supplies on hand 4. Wages owed but not yet paid 5. Telephone bill owed but payable in the following period 6. Subscriptions collected in advance by a newspaper publisher 7. Service Revenue collected but not yet earned 8. Service Revenue already earned but not yet received 9. Interest paid in advance from a bank loan 10. Rent received in advance 11. Services rendered but not yet collected 12. Advertising contract paid in advance for one year 13. Income collected but not yet earned 14. Rent paid in advance 15. Interest collected in advance by the creditor

Exercise 4-4 The Supplies and Supplies Expense accounts at December 31, after adjusting entries have been posted at the end of the first year of operations, are shown in the T-accounts below:

Supplies Bal. 2,090

Supplies expense Bal. 9,715

Determine the amount of supplies purchased during the year. 11,805

Exercise 4-5

At the end of the current year, P 21,780 of fees had been earned but had not been billed to clients. a. Journalize the adjusting entry to record the accrued fees. DATE 2020 Dec. 31

DESCRIPTION Accounts receivable Unearned Revenue To record unearned revenue for the year

P/R

DEBIT

CREDIT

21,780 21,780

b. If the cash basis rather than the accrual basis had been used, would an adjusting entry have been necessary? Explain. Adjusting entry would not be necessary in cash basis accounting, because in cash basis we only record transactions only when there is cash collected. Hence, no entry is needed for the mentioned transaction. Exercise 4-7 Prepare the adjusting entries on December 31, 2019, the end of the annual accounting period, on the following independent data. Show your computations after each entry. 1. The Insurance Expense account had a debit balance on December 31, 2019 of P 36,000 representing premium for a 2-year fire insurance policy effective October 1, 2019. 2. Rent Income was credited for P 18,000 on November 1, 2019 representing nine months’ rent collected in advance. 3. Equipment per general ledger on December 31, 2019 shows a balance of P 372,000. Equipment acquired during the year was P 52,000 on April 1, 2019. All equipment is to be depreciated at the rate of 25% per annum. 4. As of December 31, 2019, commissions already earned but not yet collected amounted to P 48,000. 5. Office Supplies costing P 9,000 bought during the period was debited to the Office Supplies account. Of the amount, P 5,000 were consumed during the year. 6. Unearned Service Fees account showed a credit balance of P 80,000 per general ledger on December 31. Of this, 40% had been actually earned during the period. 7. On December 31, 2019, a 90-day, 9% Notes Payable has a balance of P 120,000 per general ledger. The note was issued on December 5, 2019. No interest has been taken on this note.

8. Unearned service revenue has a balance of P 400,000 of which 60% has been earned. 9. Notes Receivable has a balance of P 100,000 received from a client in settlement of an open account on November 16, 2019. The note is a 90-day, 12% note. No interest has been taken on this note. 10. The Prepaid Insurance account has balance of P 210,000 on December 31, 2019. The balance represented two fire insurance policies acquired during 2019. The first policy, Policy I for P 120,000 was acquired on March 1, 2019 and the second policy, Policy II was acquired on August 1, 2019 for P 90,000. Policy I is payment for a 2-year plan while Policy II is for a one-year plan.

Date

Description

P/R

Debit

Credit

2019 Dec. 31

1. Prepaid Insurance Insurance Expense [(36,000/24 × 3] = 4,500 2. Cash Accrued Rent Income 3. Depreciation Expense – Equipment Accumulated Depreciation – Equipment (372,000 × 0.25) + (52,000 × 0.25 × 9/12) = 102,750

4,500 4,500

18,000 18,000

102,750 102,750

4. Commission Receivable Commission Revenue

48,000

5. Office Supplies Expense Office Supplies

5,000

6. Unearned Service Fee Service Fee (80,000 × 0.4) = 40,000 7. Interest Expense Interest Payable (120,000 × 0.09 × 26/90) = 3,120

48,000

5,000 32,000 32,000

3,120 3,120

8. Unearned Service Revenue Service Revenue (400,000 × 0.6) = 240,000 9. Interest Receivable Interest Income (100,000 × 0.12 × 45/90) = 6,000 10. Prepaid Insurance Expense Prepaid Insurance (120,000/24 × 10) = 50,000 (90,000/12 × 5) = 37,500

240,000 240,000

6,000 6,000

87,500 87,500

Exercise 4-8 Classification of Adjusting Entries INSTRUCTION: Classify the following transaction as:

C C D D C C B A A B D A B C B A B C D B

a. Accrued revenue

c. Prepaid expenses

b. Accrued expense

d. Unearned revenue

1. Interest paid in advance at the time the note was discounted at the bank. 2. Property taxes paid in advance. 3. Commission income received in advance. 4. Rent received in advance in property owned. 5. Life insurance premiums received by an Insurance company. 6. Supplies on hand. 7. Unpaid salaries to employees. 8. Portion of fee earned by CPA but not due until completion of an audit. 9. Interest earned but not yet received. 10. Taxes owed but payable in the following month. 11. Subscription collected in advance by a publisher. 12. Receipts from sale of meal tickets by a restaurant. 13. Interest owed but not yet due. 14. A three-year premium paid on fire insurance policy. 15. Salary owed but not yet due. 16. Uncollected service income. 17. Accrued interest on notes payable. 18. Paid advertising expenses for the quarter. 19. Collected two months deposit and one month advance on rental of apartment. 20. Unrecorded interest on notes receivable.

Exercise 4-9 Preparation of Adjusting Entries

INSTRUCTION: Only one-half of each adjusting entry has been shown in a journal form. Complete the journal entry. 2020 November 1. Interest Income is credited. Interest receivable is debited. 2. Doubtful account expense is debited. Allowance for doubtful accounts is credited. 3. Commission income is debited. Commission receivable is credited. 4. Accumulated depreciation is credited. Depreciation expense is debited. 5. Utilities expense is debited. Utilities payable is credited. 6. Service income is credited. Accounts receivable is debited. 7. Prepaid rent is credited. Rent expense is debited. 8. Rent receivable is debited. Rent income is credited. 9. Office supplies are debited. Office supplies expense are credited. 10. Allowance for doubtful accounts is debited. Doubtful accounts expense is credited. 11. Salaries payable is credited. Salary expense is debited. 12. Unearned rent is debited. Cash is credited. 13. Depreciation expense is debited.

Accumulated depreciation is credited. 14. Wages expense is debited. Wages payable is credited. 15. Prepaid insurance is credited. Insurance expense is debited. 16. Interest expense is debited. Interest payable is credited. 17. Interest receivable is debited. Interest revenue is credited. 18. Unearned commission is credited. Cash is debited. 19. Rent expense is credited. Prepaid rent is debited. 20. Unearned interest is credited. Cash is debited. Problem 4-1 INSTRUCTION: 1. Prepare the necessary adjusting entries on December 31, 2020.

DOMINIC DE MESA MERCHANDISING follows the policy of recording prepayments in REVENUE and EXPENSE accounts and reverses appropriate adjusting entries at the beginning of the new accounting period. The records of the business show the following: A. On Sept. 1, 2020, De Mesa borrowed P 200,000 cash from PNB by issuing a 14% notes payable due in one year. The interest is payable upon maturity of the note. B. De Mesa purchased a three-year insurance policy for P 90,000 on July 31, 2020. C. On September 1, 2020, De Mesa paid P 60,000 representing rental for twelve months beginning on this date. D. Office supplies on hand on March 1, 2020, amounted to P 900. During the year, office supplies of P 2,200 were purchased. On December 31, there are unused supplies of P 1,800. E. De Mesa pays all employees every Friday. The total payroll for a five-day workweek ending on January 2, 2021 is P40,000.

F. De Mesa purchased an office equipment on Sept 1, 2020, for P45,000. On January 1, 2020, the office equipment has a balance of P20, 000. All assets of the company have estimated useful life of 10 years with no salvage value. G. Dominic reports accounts receivable of P 400,000 and Allowance for doubtful accounts of P 1,000 (debit balance); 3% of the receivables are estimated to be uncollectible. DATE 2020 Dec. 31 A

B

C

D

E

F

G

DESCRIPTION Interest Expense Interest Payable (200,000 × 0.14 × 4/12) = 9,333.33

P/R

DEBIT 9,333.33

9,333.33

Insurance Expense Prepaid Insurance (90,000/36 × 5) = 12,500

12,500

Rent Expense Prepaid Rent (60,000/12 × 4) = 20,000

20,000

Supplies Expense Office Supplies (2,200 - 900) = (3,100 – 1,800) 1,300 = 1,300 Salaries Expense Salaries Payable (40,000/5 × 3) = 24,000 Depreciation Expense – Office Equipment Accumulated Depreciation – Office Equipment (40,000/10 × 4/12) = 1,500 Doubtful Accounts Expense Allowance for Doubtful Accounts (400,000 × 0.03) = 12,000 Accounts Receivable Allowance for Doubtful Accounts To normalize the balance of allowance for doubtful accounts

CREDIT

12,500

20,000

1,300 1,300

24,000 24,000

1,500 1,500

12,000 12,000

1,000 1,000

Problem 4-2 Preparation of adjusting entries INSTRUCTIONS: 1. Prepare adjusting entries on December 31, 2020 on the following transactions. 2. Show computation as your explanation. The following information has been made available in connection with the closing of the books of Minda Enterprises as of December 31 are as follows: a. Salaries already due but not yet paid as of December 31, amounted to P 9,500. b. The rent income has a balance of P 6,800. Of this amount, P 1,500 has already been earned as of December 31. c. The insurance expense account amounted to P 6,000. Of this amount, P 2,000 expired as of December 31. d. The Subscription Income has a balance of P 9,800. Of this amount P 5,000 has already been earned as of December 31. e. Interest earned but not yet collected on notes receivable outstanding, p 2,400. f. Interest due on notes payable outstanding, P 4,600. g. Interest paid in advance on a bank loan was debited to interest expense account, P980. The loan will run for a period of 90-day starting from December 1. h. Interest collected and credited to interest income P 1,400. This represents interest for a 45-day period effective December 18. i. Store supplies debited to Store supplies expense, P 6,600. As of December 31, P 2,250 store supplies are still unused. j. Accounts receivable of P250,000 is only 94% is collectible. k. Building of P300,000 have an estimated useful life of 20 years with scrap value of P50,000 and was acquired on Jan 1. DATE 2020 Dec. 31 a

b

c

d

DESCRIPTION

P/R

DEBIT

Salary Expense Salary Payable

9,500

Rent Income Unearned Revenue 6,800 – 1,500 = 5,300

5,300

Prepaid Insurance Insurance Expense 6,000 – 2,000 = 4,000

4,000

Subscription Income Unearned Subscription Income 9,800 – 5,000 = 4,800

4,800

CREDIT

9,500

5,300

4,000

4,800

e

f

g

h

i

j

k

Interest Receivable Interest Income

2,400

Interest Expense Interest Payable

4,600

2,400

4,600

Interest Payable Interest Expense (980/90 × 30) = 326.67

326.67

Interest Income Unearned Interest Income (1,400/45 × 12) = 373.33

373.33

Store Supplies Store Supplies Expense (6,600 – 2,250) = 4,350

326.67

373.33

4,350 4,350

Doubtful Accounts Allowance for Doubtful Accounts (250,000 × 0.06) = 15,000

15,000

Depreciation Expense – Building Accumulated Depreciation – Building [(300,000 – 50,000)/20] = 12,500

12,500

15,000

12,500...