ADJUSTING ENTRIES

True or False. Write TRUE if the statement is correct, and FALSE if incorrect on the space before the
number.

____________1. Interim statements report a company's business activities for a one-year period.

____________2. The cash basis of accounting is an accounting system in which revenues are recorded
when cash is received and expenses are recorded when cash is paid.

____________3. Before an adjusting entry is made to recognize the cost of expired of expired insurance
for the period, Prepaid Insurance and Insurance Expense are both overstated.

____________4. A contra account is an account linked with another account; it is added to that account
to show the proper amount for the item recorded in the associated account.

____________5. In accrual accounting, accrued revenues are recorded as liabilities.

____________6. Depreciation expense for a period is the portion of a plant asset's cost that is allocated
to that period.

____________7. Revenue and expense balances are transferred from the adjusted trial balance to the
income statement.

____________8. A salary owed to employees is an ex ed to employees is an example of an accrued

expense

____________9. The accrual basis of accounting reflects the principle that revenue is recorded when
when it is earned, not when cash is received.

____________10. A company performs 20 days work on a 30-day contract before the end of the year. The
total contract is valued at P6,000 and payment is not due until the contract is fully completed. The
adjusting entry includes a P4,000 credit to unearned revenue.

11. Reynante Rivera Company bought equipment on January 3 of this year for P100,000. At the time of
purchase, the equipment was estimated to have a useful life on nine years and a trade-in value of P10,000
at the end of nine years. Using the straight-line method, the amount of one year’s depreciation is

A) 11,110 B) 12,220 C) 90,000 D) 10,000 E) 20,000

12. If equipment cost P200,000 and accumulated depreciation amounts to P60,000, the book value of the
equipment is

A) 260,000 B) 60,000 C) 140,000 D) 200,000

13. A law firm began November with office supplies of P16,000. During the month, the firm purchased
supplies of P29,000. On November 30, supplies on hand totaled P21,000. Supplies expense for the period
is

A) 21,000 B) 24,000 C) 29,000 D) 45,000

14. A company has P1,500 of supplies on hand at the end of 2010. During 2011, P2,750 of supplies were
purchased. A count of supplies on hand at the end of 2011 found an inventory of P875. What was the
amount of supplies expense for 2011?

A) 1,875 B) 5,125 C) 3,375 D) 4,250

15. At the beginning of 2010, a company purchased a fire insurance policy covering a property for a period
of two years. The P5,600 cost of the policy was paid in cash. At the end of 2010, the company will reduce
Prepaid Insurance for this policy by:

A) 0 B) 467 C) 5,600 D) 2,800

16. A company that pays employees every two weeks has paid workers P375,000 in wages and salaries
for work completed during 2010. In addition, the employees earned one week’s salary of P7200 at the
end of December that will be paid as paid of the P14400 payroll at the end of the first week of January in
2011. How much should the company report for salaries and wages expense for 2010?

A) 367,800 B) 375,000 C) 389,400 D) 382,200

Use the following information to answer questions 17-21 below. The trial balance for Christine Resultay
Company appears as follows:

Christine Resultay Company

Trial Balance
December 31, 2011

Cash 20,000
Accounts Receivable 50,000
Prepaid Insurance 5,000
Supplies 15,000
Office Equipment 40,000
Accu. Depn. – Office Eqpt. 20,000
Accounts Payable 30,000
Resultay, Capital 60,000
Service Revenues 50,000
Salaries Expense 10,000
Rent Expense 20,000 .
TOTAL P 160,000 P 160,000

___ 17) If on Dec 31, 2011, supplies on hand were P2,000, the adjusting entry would contain a
A) Debit to Supplies for P2,000
B) Credit to Supplies for P2,000
C) Debit to Supplies Expense for P13,000
D) Credit to Supplies Expense for P13,000
___ 18) If on Dec 31, 2011, the insurance still unexpired amounted to P2,000, the adjusting entry would
contain a
A) Debit to Prepaid Insurance for P3,000
B) Credit to Prepaid Insurance for P3,000
C) Debit to Insurance Expense for P2,000
D) Credit to Prepaid Insurance for P2,000
___ 19) If the estimated depreciation for office equipment were P20,000, the adjusting entry would
contain a
A) Credit to Acc. Depn. – Office Eqpt. for P20,000
B) Credit to Depn. Expn. – Office Eqpt. for P20,000
C) Debit to Acc. Depn. – Office Eqpt. for P20,000
D) Credit to Office Equipment for P20,000
___ 20) If as of Dec 31, 2011 the rent of P10,000 for December had not been recorded or paid, the
adjusting entry would include a
A) Credit to Accumulated Rent for P10,000
B) Debit to Rent Payable for P10,000
C) Debit to Rent Expense for P10,000
D) Credit to Cash for P10,000
___ 21) If services totaling P12,500 had been performed but not yet billed, the adjusting entry to record
this would include a
A) Debit to Service Revenues for P12,500
B) Credit to Unearned Service Revenues for P12,500
C) Credit to Service Revenues for P62,500
D) Credit to Service Revenues for P12,500

Short Problems. Solve for the following problems independent of each other.

1. Before the month-end adjustments are made, the January 31 trial balance of Warriors Express
contains revenues of P 580,000 and expenses of P 178,000. Adjustments are necessary for the
following items:

a. Depreciation for January, P 48,000

b. Portion of fees collected in advance earned in January, P 110,000

c. Fees earned in January, not yet billed to customers billed to customers, P 65,000

d. Portion of prepaid rent applicable to January, P 90,000

e. Interest on loan acquired for January, P 8,000

Net income Warriors Express in January is ___________ .

2. The income statement of Dolan Corporation for 2012 included the included the following items:
following items:

Interest revenue, P 131,000

 Salaries and wages expense, P 170,000

Insurance expense, P 15,200

The following balances have been excerpted from Dolan Corporation's balance sheets:

December 31, 2012 December 31, 2011

Interest receivable P 18,200 P 15,000

Salaries payable P 17,800 P 8,400

Prepaid insurance P 2,200 P 3,000

The cash paid for insurance premiums during 2012 was _________________________ .

3. Florenda Quino Forwarders borrowed P600,000 from the bank on Sept 1, 2011. The note carried an
8% annual rate of interest and was set to mature on Feb 28, 2012. Interest and principal were paid in
cash on the maturity date.

Required:

1. What was the amount of interest expense paid in cash in 2011?

2. What was the amount of interest expense recognized on the 2011 income statement?

3. What was the amount of total liabilities shown on the 2011 balance sheet?

4. What was the total amount of cash that was paid to the bank on Feb 28, 2012 for principal and
interest?

5. What was the amount of interest expense shown on the 2012 income statement?

4. Reynaldo San Mateo, an investor, decided to invest P1,200,000 excess cash in a certificate of deposit
on April 1, 2010. The certificate carried an 8% annual rate of interest and a 1-year term to maturity.
Interest will be withdrawn monthly.

Required:

1. What amount of income will be recognized for the year ending Dec 31, 2010?

2. What amount of cash will be collected for interest revenue in 2010?

3. What is the amount of interest receivable as of Dec 31, 2010?

4. What amount of cash will be collected for interest revenue in 2011?

5. What amount of interest revenue will be recognized in 2011?

6. What is the amount of interest receivable as of Dec 31, 2011?

5. The income statement for Narciso Gabayan Company included the following expenses for 2011

Rent Expense P 780,000

Interest Expense 117,000

Salaries Expense 1,245,000

Listed below are the related balance sheet account balances at year end for last year and this year.

2010 2011

Prepaid Rent ------------ P 13,500

Interest Payable P 18,000 ------------

Salaries Payable 75,000 114,000

Required:

1. Compute the cash paid for rent during 2011

2. Compute the cash paid for interest during 2011

3. Compute the cash paid for salaries during 2011

6.