Adjusting Entries AND Promissory Notes PDF

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Adjusting Entries AND Promissory Notes. Answers to the assignment during midterm...

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ADJUSTING ENTRIES AND PROMISSORY NOTES I.IDENTIFICATION: Accrued Expense 1. An expense that is already incurred by the business but not yet paid when the accounting period ends. Assets and Liabilities 2. Refers to income and expense accounts. Net realizable value 3. The difference between Accounts Receivable and the related allowance for doubtful accounts. Real Account 4. Refers to balance sheet accounts. Net book value 5. The difference between cost of asset and its related valuation account. Periodicity assumption 6. Another term for Time-period assumption. Adjusting entry 7. An entry that splits the nominal and real accounts from a mixed account. Mixed Account 8. An account which contains both nominal and real accounts. Prepaid expenses 9. An expense that is already paid but not yet incurred. Accrued income 10. An income that is already earned but not yet received or collected. Depreciation expense 11. An expired cost of a fixed asset that is charged to expense. Matching principle 12. Combined principle of revenue and expense recognition. Pre-collected income 13. An income that is already received but not yet earned. Cut-off period 14. Segregation of all elements or accounts belonging to a particular date only. Account Expense 15. Provision for doubtful accounts without passing the allowance for doubtful accounts. Principal 16. Refers to the face value of the note. Maker of the Promissory Note 17. A person or business entity who makes the promissory note and makes payment of the said note as it falls due. Interest 18. Refers to the charge for a borrowed money. Beneficiary / Payee of the Promissory Note 19. A person or business entity to whom the promise is given and receive the payment of the said note as it falls due. Maturity Value 20. Refers to the total amount due upon its maturity date which comprise of the principal amount and the interest earned.

II. Determine the maturity date , interest and maturity value of the following notes. ( Date of issue: August 1, 2020) Maturity date

Interest

Maturity value

1.A P70,000, 6 ¾% , 60-day note Sep 30, 2020

787.50

70,787.50

2.A P50,000, 5 ¼%, 90-day note Oct 31, 2020

656.25

50,656.25

3. A P200,000, 8 ½%, 120-day note Nov 30, 2020 5,666.67

205,666.67

III. A. From the following independent adjustment items at calendar year-end (2020), present adjusting journal entries. Show computations in good form. ( Use account titles which you think are appropriate under the circumstances.) 1. Accrued interest on notes: Note to a supplier, 12%, 90-day, dated November 1, 2020, P150,000.

Note from a customer, 6%, 120-day, dated October 1, 2020, P200,000 I = ( 150,000 ) (.12) (90/360) = 4500 / 3 mos. = 1500 / mo. Adjusting Entry Dec. 31, 2020 Accrued Interest Expense P 3,000 Interest Expense

P 3,000

I = ( 150,000 ) (.06) (120/360) = 3000 / 4 mos. = 750 / mo. Adjusting Entry Dec. 31, 2020 Accrued Interest Income P 2,250 Interest Income

P 2,250

2. A collection of P80,000 from a client was previously credited to Unearned Service Income. ½ of the collection is estimated to have been earned. Adjusting Entry

Dec. 31, 2020

Service Income Unearned Service Income

P 40,000 P 40,000

3. A cash drawing of P20,000 by the owner, Dr. Pilapil was erroneously debited to Salaries Expense. Adjusting Entry Dec. 31, 2020 Drawing Account P 20,000 Cash P 20,000 4. A payment for telephone bills of P1,895 was erroneously recorded as follows: Utilities Expense 1,985 Cash 1,985 Adjusting Entry Utilities Expense 1,895 Cash 1,895

5. Unused office supplies – P1,475. The original amount was P2,000. Adjusting Entry Office Supplies Expense 1,475 Unused Office Supplies 1,475

6. The company drew a one year insurance policy on its building on May 1, 2020, the entry being: Insurance Expense 15,000 Cash 15,000 15,000 / 12 mos. = 1250 / mo. May 1, 2020 – Dec. 31, 2020 = 8 months (expense portion) 8 months x 1,250 = 10,000 expense portion Jan. 1, 2020 – May. 1, 2020 = 4 months ( asset portion ) 4 months x 1,250 = 5,000 (asset portion) COMPARATIVE JOURNAL ENTRIES EXPENSE METHOD ASSET METHOD (Nominal Approach ) (Real Approach) UPON PAYMENT May. 1, 2020

Prepaid Insurance 15,000 Insurance Expense 15,000 Cash 15,000 Cash 15,000 To record insurance premium To record insurance paid. premium paid.

Adjusting Entry

Prepaid Insurance 5,000 Insurance Expense 5,000

Insurance Expense 10,000 Prepaid Insurance 10,000...