Exercise 3: ADJUSTING ENTRIES – SERVICE BUSINESS

Problem 1

Listed below are the transactions of Jessica Company in 2019:

Jul 1 Received a check from Cebu Ferries in the amount of P270,000 for professional services to be
rendered over the next 18 months.

Oct 1 Paid P135,000 advertising to be provided for the next 9 months.

Dec 31 At December 31, 2019, P230,000 of the salaries have accrued. Assuming that payday is on
January 4, 2020 and P620,000 in salaries were paid on that date.

Required:

1. Assume that the transactions were initially recorded in the balance sheet accounts, record the
adjusting entries. Also, record the January 4, 2020payment of salaries.
2. Now, assume that these transactions were initially recorded in income statement accounts,
record the adjusting entries. Also, record the January 1, 2020 reversing entry and January 4,
2020 payment of salaries.

Problem 2

Edgar Detoya, a tax consultant, began his practice on December 31, 2019. The transactions of the firm
are as follows:

Dec 1 Detoya invested P150,000 to the firm.

2 Paid rent for December to Recoletos Realty, P8,000.

2 Purchased supplies on account, P7,200.

3 Acquired P75,000 of office equipment, paying P37,000 down with the balance due on 30
days.

8 Paid P7,200 on account for supplies purchased.

14 Paid assistant’s salaries for 2 weeks, P6,000.

20 Performed consulting services for cash, P20,000.

28 Paid assistant’s salaries for 2 weeks, P6,000.

30 Billed clients for December consulting services, P48,000.

31 Detoya withdrew P12,000 from the business.

Required:

1. Prepare journal entries to record the December transactions.

2. Post the December transactions into T-accounts.
3. Prepare unadjusted trial balance as of December 31, 2019.
4. Prepare adjusting entries for the following:
a. Supplies on hand as of December 31 amounted to P4,700.
b. Salaries of P1,800 have accrued at month end.
c. Depreciation is P800 for December.
d. Detoya has spent 20 hours on a tax fraud case during December. When completed in
January, his work will be billed at P500 per hour. The firm uses the account “Fees
Receivable” to reflect the amounts earned but not yet billed.
5. Prepared adjusted trial balance as of December 31, 2019.
6. Prepare am income statement, statement of changes in equity, and balance sheet as of
December 31, 2019.