ADJUSTING JOURNAL ENTRIES

 

DEFINITION AND IMPORTANCE OF

ADJUSTING JOURNAL ENTRIES

 ADJUSTING JOURNAL ENTRIES ARE ENTRIES

USED TO UPDATE THE ACCOUNTS PRIOR TO
THE PREPARATION OF FINANCIAL STATEMENT
STATEMENTS
S
BECAUSE THEY AFFECT MORE THAN ONE
 ACCOUNTING PERIOD
PERIOD
 

PREPAYMENTS
 ARE EXPENSES ALREADY PAID BUT NOT
YET INCURRED OR USED
FOLLOWING
FOLLO WING ARE THE ACCOUNTS
SUBJECTED TO
TO ADJUSTMENTS:
 ASSET METHOD
METHOD
 JOURNAL ENTRY
ENTRY UPON PA
PAYMENT 
PREPAID EXPENS
PREPAID EXPENSEE XXX 
CASH XXX 
 ADJUSTING JOURNAL ENTRY
ENTRY AT THE END
OF THE ACCOUNTING PERIOD
EXPENSE XXX 
 

EXAMPLE 1


ON APRIL 30,2016,
30,2016,XX CO
CO. PAID
PAID P36,
P36,000
000 WORTH OF
INSURANCE
INSURA NCE PREMIUM FOR TW TWOO YEARS.GIVE
YEARS.GIVE THE
ADJUSTING JOURNAL ENTRY ON JUNE 30,2016
 

ANSWER
 JOURNAL ENTRY
ENTRY UPON PPA
AYMENT ON APRIL 30, 2016
PREPAID
PREPAID INSURANCE 36,000
CASH 36,000

PAID TW
TWO
O -YEAR INSURAN
INSURANCE
CE

ADJUSTI NG JOURNA
ADJUSTING JOURNALL ENTR
ENTRY
YAAT
T THE END OF THE
ACCOUNTING PERIOD JUNE 30, 2016
INSURANCE EXPENSE 3,000
PREPAID
PREPAID INSURANCE 3,000
TO RECORD THE EXPIRED INSURANCE

Computation P36,000 = P1,500 X 2= P3,000

24
 

EXAMPLE 2

 SUPPLIESS ACCOUNT SHO

SUPPLIE SHOWED
WED A BALANCE OF
P4,000.SUPPLIES USED DURING THE YEAR
AMOUNTED TO TO P2,300. GIVE THE ADJUSTING ENTR
ENTRY
Y
ON DEC. 31, 2016
 

ANSWER
 ADJUSTING JOURNAL ENTRY ON DEC. 31,2016

SUPPLIES EXPENSE 2,300

SUPPLIES 2,300
TO RECORD SUPPLIES USED FOR THE YEAR

Computation. There is no computation necessary because

the P2,300 supplies used
use d during the year was
was already given
given
in the problem.
 

Example 3
 The trial balance of MONGOLIA CAFÉ
shows Kitchen Supplies and Kitchen
Supplies Expense
P8,400. At accounts
year end, there at
arebalances
P1,480 of
of
supplies on hand.
 

answer3
 KITCHEN SUPPLIES EXPENSE 6,920
KITCHEN SUPPLIES 6,920

Computation: 8,400 – 1,480= 6,920

 

DEFERRALS OR UNEARNED INCOME

• IS INCOME ALREADY RECEIVED BUT NOT YET EARNED
• LIABILITY METHOD
•  JOURNAL ENTRY
ENTRY UPON RECEIPT OF CASH
CASH XXX
UNEARNED INCOME XXX
RECEIVED CASH FOR
F OR SER
SE RVICES TO BE RENDERED

 ADJUSTING
 ACCOUNTING
 ACCOUNTINGJOURNAL
PERIOD ENTRY
ENTRY AT THE END OF THE
UNEARNED INCOME XXX 
INCOME XXX 
TO RECORD EARNED POR
PORTION
TION OF THE LIABILITY 
 

EXAMPLE 1

 ON AUGUST
AUGUST 1, DR.YEE RECEIVED P90,000 FOR
DENTAL
DENTAL FEES TO BE R
RENDERED
ENDERED IN THE NEXT 6
MONTHS.
THE GIVE
END OF THE ADJUSTIN
SEPT. ADJUSTINGG JOURNAL ENTRY
ENTRY A
AT
T
 

ANSWER
 JOURNAL ENTRY
ENTRY UPON RECEIPT OF CASH ON AUGUST 1

CASH 90,000
UNEARNED
UNEARN ED DENT
DENTAL
AL FEES 90,000

RECEIVED
RECEIVE D CASH FOR DENT
DENTALSER
ALSERVICES
VICES TO BE RENDERE
RENDEREDD

ADJUSTING JOURNAL ENTRY ON SEPTEMBER 30

UNEARNED
UNEARN ED DENT
DENTAL
AL FEES 30,000
DENTAL
DENTAL FEES 30,000
TO RECORD
RECORD DENT
DENTALAL FEES
FEES EARNED
EARNED
Computation. 90,000 /6=15,000 * 2=P30,000 
 

EXAMPLE 2

 ON DECEMBER 1,2016, PETIT CO. RECEIVED P48,000

AMOUNT OF ADVANCED RENTALS FOR 6 MONTHS.
GIVE THE ADJUSTING JOURNAL ENTRY
ENTRY ON DEC. 31,
2016
 

ANSWER

  JOURNAL ENTRY
ENTRY UPON RECEIPT OF CASH ON DEC
DEC.1
.1
CASH 48,000
UNEARNED RENT INCOME 48,000
RECEIVED 6 MONTHS RENT IN ADVANCE
o  ADJUSTING JOURNAL ENTRY
ENTRY ON DEC. 31
UNEARNED RENT INCOME 8,000
RENT INCOME 8,000
TO RECORD RENT EARNED FOR THE MONTH 
Computation. 48,000/6=P8,000 *1=P8,000 
 

Example 3
On March
Marc h 1, 2015, FINL
FINLAND
AND Tutor
utorials
ials received
P60,000 representing an advance
advance payment for
services
ser vices to be rendered in No
November
vember 2015. This
was booked using a real account. As of the year-
end, only 70% of the expected serservice
vice was
rendered.
 

answer3
 UNEARNED SERVICE REVENUE 42,000
SERVICE REVENUE 42,000

Computation:60,000 x .70=42,000
 

ACCRUED EXPENSES

• ARE EXPENSES
EXPENSES ALREAD
ALREADY
Y INCURRED
INCURRED OR USED
USED,, BUT NOT YET
PAID
•
ADJUSTING JOURNAL ENTRY
ADJUSTING ENTRY A
AT
T THE END OF A
ACCOUNTI
CCOUNTING
NG
PERIOD

EXPENSES XXX
EXPENS
EXP ENSE
E PAYABL
ABLEE /ACCRUED EXP
EXPENS
ENSE
E XXX
TO RECORD UNPAID EXPENSE
 

EXAMPLE 1

 THE COMP
COMPANY
ANY RECEIVED A MA
MAYNILAD
YNILAD BILL IN THE
AMOUNT OF P9,800
P9,800 O
ONN DEC.
DEC. 26, 2016. THE
COMPANY INTEN
INTENDS
DS TO PA
PAY ON JAN. 8, 2017
 

ANSWER


ADJUSTING JOURNAL ENTRY ON DEC. 31, 2016

UTILITIES EXPENSE 9,800
UTILITIE
UTIL ITIESS PAYABL
ABLEE 9,8000
9,80
TO RECORD
R ECORD UNP
UNPAID
AID UTILITIES FOR THE MONTH 
 

EXAMPLE 2

UNPAID SALARIES
UNPAID SALARIES A
AT
T THE END OF DEC.31,2016
AMOUNTED TO P18,800
P18,800
ADJUSTING JOURNAL ENTRY ON DEC. 31,2016
 

ANSWER

SALARIES EXPENSE 18,800

SALARIE
SAL ARIESS PAYABL
ABLEE 18,800
18,8 00
TO REC
RECORD
ORD UNP
UNPAID
AID SALA
SALARIES
RIES AT
ATYEAR END
 

Example 3
 On Marc
Marchh 1,2015,Xy
1,2015,Xylophon
lophonee Tutorials
utorials
borrow
borrowed mone
moneyy from Metr
Metrobank
obank to be
used in busine
interest bbearing
usiness
ss.Xylop
.Xylophone
hone
note for theissued
issued an
P285,000,net
of 2% processing fee, it received. The bank
loan is payable after three years with an
annual interest of 15%. Provide
Provide the journa
journall
entries at year-end 2015.
 

answer

INTEREST EXPENSE 36,352.04

INTEREST
INTE REST PAYABLE
ABLE/ACCRUED
/ACCRUED INT. EXPE
EXPENSE
NSE 36,352.04
36,35 2.04

Computation : 285,000= net of 2%

Finding the Principal Amo
Amount
unt
=x-0.02x
=285,000/0.98
Principal = 290,816.32
Interest =Principal x Rate x Time
= 290,816.32 x 15% x 10
Annual Interest =43,622.44
= 43,622.44/12
Monthly Int. = 3,635.20
=3,635.20 x 10
=36,352.04
 

ACCRUED INCOME

 INCOME ALREADY EARNED BUT NOT YET RECEIVED

INCOME RECEIV
RECEIVABLE/Accr
ABLE/Accrued
ued Income XXX
INCOME XXX
TO RECORD INCOME EARNED
 

EXAMPLE 1

 A ONE – YEAR,
YEAR, 6% NOTE RECEIV
RECEIVABLE
ABLE IN THE
AMOUNT OF P200,000 WAS RECEIVED ON JAN.
JAN. 1,
2016. THE INTEREST AND THE PRINCIP
PRINCIPAL ARE
PAYABLE ON MATUR
MATURITY
ITY DATE.
DATE. GIVE THE ADJU
ADJUSTI
STING
NG
 JOURNAL ENTRY
ENTRY ON JUNE 30, 2016
 

ANSWER
 ADJUSTING JOURNAL ENTRY ON JUNE 30,2016

INTEREST
INTERES T RECEIV
RECEIVABLE
ABLE 6,000
INTEREST INCOME 6,000
TO RECORD INTEREST INCOME EARNED
Computation.
Interest= Principal x Rate x Time
= P200,000 x 6% x ½ year 
= P200,000 X 0.06 X ½
= P6,000 
The interest for 6 months is P6,000 
 

Example 2

 Drum Stick Chickens rendered

rendered catering ser
services
vices last December
15,2015. The contract price amounted to P75,000. Since no
paymententry
 journal has been received yet.
last December 15,Drum
2015.Stick did not make any
 

answer

Accrued Service Income/ Income Receivable 75,000

Service Income 75,000
 

BAD DEBTS/DOUBTFUL
ACCOUNTS/UNCOLLECTIBLE
ACCOUNTS
 BAD DEBTS/DO
DEBTS/DOUBTFUL
UBTFUL ACCOUNT
ACCOUNTSS ARE LOSSES DUE TO
UNCOLLECTIBLE
UNCOLLEC TIBLE ACCOUNTS
ACCOUNTS
•

ADJUSTI
ADJUSTING
NG JOURNAL
ACCOUNTING JOURNA L ENTRY
PERIOD ENTRY A
AT
T THE END OF THE
BAD DEBTS EXPENSE XXX
ALLOWANCE
ALLOW ANCE for BAD DEBTS XXX
TO RECORD
R ECORD ESTIMA
ESTIMATED
TED UNCOLLEC
UNCOLLECTIBLE
TIBLE ACCOUNTS
ACCOUNTS
OR
DOUBTFUL ACCOU
ACCOUNTS
NTS EXPENSE XXX

ALLOWANCE
ALLOW
TO RECORD ANCE TED
for DOUBTFUL
ESTIMATED
ESTIMA ACCOUNTS
UNCOLLECTIBLE
UNCOLLECTIB ACCOUNTSXXX
LE ACCOUNTS
 

EXAMPLE 1

ACCOUNTS RECEIVABLE
RECEIVABLE SHO
SHOWS
WS A BALANCE
BALANCE O OFF
P100,000. IT IS ESTIMATED
ESTIMATED THA
THAT
T 8% OF THIS IS
UNCOLLECTIBLE. GIVE THE ADJUSTING JOURNAL
UNCOLLECTIBLE.
ENTRY ON DEC. 31, 2016 FOR THE PROVISION OF THE
ESTIMATED
ESTIMATED UNCOLLECTIBLE
UNCOLLECTIBLE ACCOUNT
ACCOUNT
 

ANSWER

BAD DEBTS EXPENSE 8,000

ALLOWANCE
ALLOWANCE for BAD DEBTS 8,000
TO RECORD ESTIMATED UNCOLLECTIBLE ACCOUNTS

Computation. P100,000 X 0.08= P8,000

 

Example 2

 Accounts Receivable shows a balance of P100,000.It is estimated that

8% of this is uncollectible. Allowance for Bad Debts per general
ledger has a balance of P1,000.Give the adjusting
adjusting journal entry
entr y on
December 31,2016 for the provisi
provision
on of the estimated uncollectible
account.
 

answer

Bad Debts Expense 7,000

Allowance for Bad Debts 7,000

Note: Allowance for Doubtful Accounts

1,000 Balance before adjustment
7,000 Adjusting journal entry
entr y

8,000 required balance(end)

 

DEPRECIATION EXPENSE

 IS THE ALLOCATION
ALLOCATION OF PLANT ASSET COST OVER
ITS ESTIMA
ESTIMATED
TED USEFUL LIFE. THIS IS THE EXPENSE
ALLOTTED FOR THE WEAR AND TEAR OF
PROPER
PROPE RTY,P
TY,PLA
LANT
NT,, AND EQUIPME
EQUIPMENT
NT DUE TO
PASS
ASSAAGE OF TIME
 

DEPRECIATION EXPENSE
 THE FF. ARE 3 FACTORS CONSIDERED IN
COMPUTING
COMPUTI NG THE DEPRECIATION
DEPRECIATION EXPENSE:
1. COST is the purchase price of the depreciable asset
2. SALVAGE VALUE is the estimated value of the asset at
the end of its useful life
3. ESTIMATED USEFUL LIFE, as the name connotes, is
not an exact measurement but merely an estimation of
the number of years an asset can be useful
useful to the entity
entity..
 

The formula for computing for annual

depreciation is as follows:
COST P xxx
LESS:: Salvage
LESS Salvage Value xxx
Depreciable
Depreciab le cost P xxx
Divided by: Estimated Useful Life xxx
Annual Depreciation P xxx

Entry:
Depreciation Expense xxx
Accumulated Depreciation xxx
 

EXAMPLE 1

 A BUILDING
BUILDING WITH AN ES
ESTIMA
TIMATED
TED USEFUL
USEFUL LI
LIFE
FE OF 30
YEARS FINISHED CONSTRUCTION ON JUNE 1,2016.
THE COST OF THE BUILDING IS 4.8 MILLION PESOS
WITH
WIT H AN ESTIMA
ESTIMATED
TED SALV
SALVAGE VALUE
ALUE OF P300,000
P300,000..
GIVE THE ADJUSTING JOURNAL
JOURNAL ENTRY
ENTRY ON DEC. 31,
2016 TO RECORD THE DEPRECIA
DEPRECIATION OF THE

BUILDING
 

ANSWER 1
 ADJUSTING JOURNAL ENTRY ON DEC. 31, 2016

DEPRECIA
DEPRECI ATION EXPENS
EXPENSEE 87,500
ACCUMULATED
ACCUMULATED DEPRECIA
DEPRECIATION
TION 87,500
TO RECORD
R ECORD DEPRECIA
DEPRECIATION
TION EXPENSE
EX PENSE FOR THE BUILDING
Computation.
Cost P4,800.000 
Less:: Sal
Less Salvag
vageeVal
alue
ue 300,000 
300,00 0 
Depreciable cost P4,500,00 
Divided by: Estimate
Estimated
d Usefu
Usefull Life 30 years

 Annual Depreciation
Depreciation P 150,000/12
 Monthly Depreciat
Depreciation
ion 12,500 x 7 87,500 
 

Example 2

The company constructed

constructed its own building with total
cost amounting to P22,000,000. The building has an
estimated useful life of 25 years and a salvage value of
P1,000,000. The building was completed last April 30
and depreciated started after its completion.
 

Answer 2
DEPRECIATION EXPENS
DEPRECIATION EXPENSEE 560,000
ACCUMULATED
ACCUMULA TED DEPRECIA
DEPRECIATION
TION 560,000
TO RECORD
R ECORD DEPRECIA
DEPRECIATION
TION EXPENSE
EXPENSE FOR THE
BUILDING
Computation.
Cost P22,000,000 
Less:
Les s: SalvageValue 1,000,000
1,00 0,000
Depreciable cost P21,000,000 
Divided by: Estimated Useful Life 25 years
 Annual Depreciat
Depreciation
ion P 840,000 

Monthly Depreciation 840,000/12=P

840,000/12=P70,000 
70,000 
 70,000 X 8mos. 560,000 
 

Example 3
AUSTRALIA Delivery needed four trucks in 2015.Two trucks
were purchased on May 1,2015 at ₱1,850,000 each and
another two trucks were purchased on July 1, 2015 at
a total price 15% higher than the May 1,2015
purchase. For
For this type of depreciable assets,
Australia is allocating 8% of the acquisition cost for
scrap value and estimating useful lives at 8 years.
 

answer3
DEPRECIATION
DEPRECIATION EXPENSE 528,329.17
ACCUMULATED
ACCUMULATED DEPRECIA
DEPRECIATION
TION 528,329.177
528,329.1
Computation.
Cost 3,700,000 4,255,000
Less: SalvageValu
Less: aluee 296,000
296,0 00 (340,400)
(340,400)
Depreciable cost 3,404,000 3,914,600 
Divided by: Estimated Useful Life 8 years 8 yrs
 Annual Depreciat
Depreciation
ion 425,500 489,325
Monthly Depreciat
Depreciation
ion 35,458.33 40,777.08
May1 to Dec. 283,666.66 July1 to Dec.   244,622.50

283,666.66 + 244,622.50 = 528,329.17

 

answer3
DEPRECIATION EXPENSE
DEPRECIATION 528,329.17
ACCUMULATED
ACCUMULA TED DEPRECI
DEPRECIAATION 528,329.17
528,32 9.17

Analysis & Computation:

May 1, 2015 July 1,201
1,20155
1,850,000 x 2=3,700,000 1,850,000 x 2 x 0.15
=3,700,000 x 0.08 =3,700,000 x 0.15
=296,000 =555,000
=3,700,000-296,000 =3,700,000 + 555,000
=3,404,000/8 =4,255,000 x 0.08
=425,500/12 =340,400
=35,458.33 x 8
=35,458.33 = 4,255,
4,255,000-
000- 340,40
340,4000
=283,666.66 =3,914,6000 / 8
=489,325/12
=40,777.08 x 6
=244,622.50
 So, we will add 283,666.66 + 244,622.50=528,329.16
 

APPLICATION

GIVE THE ADJUSTING

ADJUSTING JOURNAL
JOURNAL ENTRIES ON DEC. 31 GIVEN
THE FF.

RENT PAID LAST

LAST JULY,
JULY, AMOUNTE
AMOUNTED D TO P21,0
P21,000,
00, OF WHIC
WHICHH
P14,000
P14, 000 HAS ALREA
ALREADDY EX
EXPIRE
PIRED
D.THIS
.THIS WAS INI
INITIA
TIALL
LLY
Y
RECORDED
RECO RDED AS PREPAID RE
RENTNT UPO
UPONN PAYMEN
YMENT T.
 

answer1

RENT EXPENSE 14,000

PREPAID RENT 14,000
 

APPLICATION 2

GIVE THE ADJUSTING

ADJUSTING JOURNAL
JOURNAL ENTRIES ON DEC. 31 GIVEN
THE FF.

SUPPLIES PURCHASED DURING THEYEAR AMOUNTED T TO

O
P2,900, OF WHICH P2,000 HAS BEEN USED DURING THE
YEAR.THE ASSET METHOD WAS USED UPON PURCHASE
PURCHASE OOFF THE
SUPPLIES.
 

answer2

SUPPLIES EXPENSE 2,000

SUPPLIES 2,000
 

APPLICATION3

GIVE THE ADJUSTING

ADJUSTING JOURNAL
JOURNAL ENTRIES ON DEC. 31 GIVEN
THE FF.

UNEARNED INTEREST HAS A BALANCE OF P4,800, OF WHICH

P1,900 HAS ALREADY
ALREADY BEEN EARNED DURING THE YEAR. THE
AMOUNT WAS INITIA
INITIALL
LLY
Y CREDITED
CREDITE D TO UNEARNE
UNEARNEDD INTERES
INTERESTT
UPON COLLECTION
 

Answer 3

UNEARNED INTEREST 1,900

INTEREST INCOME 1,900
 

application4
GIVE THE ADJUSTING
ADJUSTING JOURNAL
JOURNAL EENTRIES
NTRIES ON D
DEC.
EC. 31

On March 1,2015, ANGEL Tutoria

utorialsls received ₱70,000
representing an advance payment for services to be
rendered in October 2015. This was booked using a

real account.
expected As of
service therendered.
was year-end, only 80% of the
 

answer4

UNEARNED SERVICE
SERVICE REVENUE 56,000
SERVICE
SERVICE REVENUE 56,000
 

APPLICATION5

UNPAID SALARIES OF ITS CLEANERS AS OF DECEMBER 31 IS

P8,000.
 

ANSWER5

SALARIES EXPENSE 8,000

SALARIES
SALARI ES PAYABLE /Accr
/Accrued
ued salaries
salar ies expense 8,000
 

APPLICATION6

On April
Apri l 1,
1,2015,
2015, Devine Tutorials
utorials bor
borrow
rowed
ed money from City
City
Savings Bank to be used in business. Devine issued an interest
bearing note for the ₱385,000 net of 3% processing fee, it
received. Provide the adjusting entries at the year end .
 

ANSWER6

INTEREST EXPENSE 44,652.06

INTEREST
INTERE ST PAYABLE/Accr
ABLE/A ccrued
ued Interest
Interes t Expens
Expensee 44,65
44,652.06
2.06

385,907.21 x .97=396,907.21 x .15=59,536.08/12=4,961.34 x

9=44,652.06
 

Application 7

UNCOLLECTIBLE ACCOUNTS A
UNCOLLECTIBLE AT
T YEAR-E
YEAR-END
ND IS
ESTIMATED
ESTIMATED TO BE P7,890.
 

ANSWER7

BAD DEBTS EXPENSE 7,890

ALLOW
ALLOWANCE FOR BAD DEBTS 7,890
 

APPLICATION 8
 

ANSWER8
 

APPLICATION
APPLICATION 9

DEPRECIATION
DEPRECIATION EXPENSE FOR ITS EQUIPMENT
EQUIPMENT,, P12,000
 

ANSWER9

DEPRECIATION EXPENSE-EQ
DEPRECIATION EXPENSE-EQUIPMENT
UIPMENT 12,000
ACCUMULA
CCUMULATED
TED DEPRECIATION-EQUIPMENT
DEPRECIATION-EQUIPMENT 12,000
 

EXERCISE 1
SNOOPY ENTERPRI
ENTERPRISES
SES PRO
PROVIDES
VIDES COLLECTION
COLLECTION SERVICES
SERVICES TO ITS
CUSTOMERS.YEAR-END
YEAR-END ADJUSTING JOURNAL ENTRIES ARE
PREPARED
PREPARED EVERY
EVERY DEC. 31 AS ITS
ITS BOOKS ARE CLOSED
CLOSED.. MAKE THE
APPROPRIATE
APPROPRIA TE ADJUSTI
ADJUSTING
NG ENTRY
ENTRY FOR EAEACH
CH OF THE FF ITEMS:
1. UNCOLLEC
UNCOLLECTIBLE
TIBLE ACCOUNTS
ACCOUNTS AT YEAR-
YEAR-END
END IS ESTIMA
ESTIMATED
TED T
TO
O
BE P6,950.
2. RENT PAID LAST APRIL AMOUNTED TO P400,000,ON
P400,000,ONEE
FOURTH OF WHIWHICH
CH HAS ALR
ALREAD
EADY
Y EXPIRED
EXPIRED.THI
.THISS WAS
INITIALLY RECORDED AS PREPAID RENT UPON PAYMENT.
3. DEPRECIA
DEPRECIATION
TION EXPENSE FOR ITS TRANSPO
TRANSPOR RTATION
EQUIPMENT,P6,780
4. SUPPLIES PURCHASED DURING THEYEAR AMOUNTED TO TO
P4,290,OF WHICH ONE- THIRD HAS BEEN USED DURING THE
YEAR.
 

5. UNPAID SALARIES OF ITS CLEANERS AS OF

DECEMBER 31 IS P7,460.

6. UNEARNED INTEREST HAS A BALANCE OF P3,120, OF

WHICH P2,560 HAS ALREADY BEEN EARNED DURING
THE YEAR. THE AMOUNT W
WAS
AS INITI
INITIALL
ALLY
Y CREDIT
CREDITED
ED T
TO
O
UNEARNED INTEREST UPON COLLECTION.
 

EXERCISE 3
Bey Cleaners closes its books
books ev
every
ery December 31 an
andd correspondingl
correspondinglyy
prepares year-end adjusting entries. Make the appropriate adjusting
entry for each
eac h of the ff. items:
1. Last September 15, Bey Cleaners decided to sign
sign the com
company
pany for
 – 
an eight
its month
products. The adver
advertising
tisingreceived
company contractp780,000
for a full for
blasttheadvertising of all
contract and
the accountant credited the amount to Unearned Advertising.
2. Last August 30, the company subscribed to a business magazine
paying P3,240 for a three-year subscription to start in September.
This was recorded to Prepaid Subscription.
3. Supplies account at the beginning of the year showshowed ed a balance of
P10,800. No purchases were made during the year. Supplies used
during the year amounted to P7,100.
 

 4. A Mac
Machine
hine costing
costing P950,000
P950,000,WIT
,WITH H A SSAL
ALVVAGE VALUE OF
P50,000 and an estimated useful life of 15 years is depreciated on a
straight line basis
 5. Utilities bill amounting to P3,486 was received on Dec. 27. The
company intends to pay it on January 5 the ff. year.
 6. Last May 1, the company decided to rent a garage as parking
space of its company vehicles. Nine months rent was paid in
advance in the amount of P81,000. The Asset Method was used to
record this transaction.


7. Last June 15, the company lent Angel Co. P90,000 at 10% per
annum.
 

 8. Last Nov.
Nov. 1, the third
third floor
floor of the company building
building wa
wass leas
leased
ed
to Poseidon
Poseidon EEnterprises.
nterprises. Bey Cleaners received P184,000
representing an 5-month lease contract. The Liability Method was
used to record the receipt of payment.
 9. Doubtful accounts at the end of the year are estimated to be
4% of Acc
Accounts
Allowance
Allow ounts Receivable which has a balance of P275,000.
ance for Doubtful Accounts has a credit balance of P9,700
per general ledger before adjustment.
 10. The company constructed its own building with total cost
amounting to P22,000,000.
life of 25 years and a salvage The
valuebuilding has an estimated
of P1,000,000. useful
The building
was completed last April 30 and depreciated started after its
completion.
 

EXERCISE 1
1.DOUBTFUL ACCOUNT EXPENSE 6,950
ALLO. FOR DOUBTFUL ACCOUNT 6,950

2.RENT EXPENSE 100,000

PREPAID RENT 100,000

3. DEPRECIA
DEPRECIATION EXPENSE-EQUIPMENT
EXPENSE-EQUIPMENT 6,780
ACCUM. DEP-EQUIPMENT 6,780
4. SUPPLIES EXPENSE 1,430

SUPPLIES 1,430
 

5. SALARIES EXPENSE 7,460

SALARIES PAYABLE 7,460

6. UNEARNED INTEREST 2,560

INTEREST INCOME 2,560
 

EXERCISE 3
1. UNE
UNEARN
ARNED
ED ADVER
ADVERTIS
TISING
ING INC
INCOME
OME 341,25
341,2500
ADVERTISING INCOME 341,250

2.SUBSCRIPTION EXPENSE 360

PREPAID SUBSCRIPTION 360

3. SUPPLIES EXPENSE 7,100

SUPPLIES 7,100
4. DEPRECIA
DEPRECIATION EXPENSE-EQUIPMENT
EXPENSE-EQUIPMENT 60,000

ACCUM. DEP.-EQUIPMENT 60,000

 

5. UTILITIES EXPENSE 3,486

UTILITIES PAYABLE 3,486

6.RENT EXPENSE 72,000

PREPAID RENT 72,000

7.INTEREST RECEIVABLE 4,875

INTEREST INCOME 4,875

8. UNEARNED RENT 73,600

RENT INCOME 73,600

9.DOUBTFULL ACCOUNT EXPENSE 1,300

9.DOUBTFU
 ALLO. FOR DOUBTFUL ACCOUNTS 1,300
 

10. DEPRECIATION
DEPRECIATION EXPENSE-BUILDING
EXPENSE- BUILDING 560,000
ACCUM. DEP.-BUILDING 560,000