Module 4 – The Accounting Cycle – 2

Lesson 1
Adjusting the Accounts

EXTEND
Name: _____________________________________ Time: _______________________

Case 1: On October 1, 2007, Angie Aguilon, owner of Valencia Fitness

Centre paid an advance rental on a space of the building it occupies in the
amount of P60,000. This covers the period from October 1, 2007 to October
1, 2008 and the accounting period ends on December 31, 2007. Write your
answers on the space provided.

Q1. If Asset Method or Real Approach is used in recording the prepayment,

what is your journal entry on October 1, 2007?

Debit _________________________________

Credit_________________________________

Q2. If Expense Method or Nominal Approach is used in recording the

prepayment, what is your journal entry on October 1, 2007?

Debit _________________________________

Credit_________________________________

Q3. How much of the P60,000 advanced rental will expire or will be expensed
at the end of each month?

_______________________________________

Q4. How many months will cover the expense portion?

_______ from _______ to_______

Q5. How many months will cover the asset portion?

_______ from _______ to_______

Q6. How much of the P60,000 prepayment will be considered as Expense?

___________ As Asset? _______________
Q7. If Asset Method or Real Approach is used in recording the prepayment,
what is your adjusting journal entry on December 31, 2007?

Debit _________________________________

Credit_________________________________

Q8. If Expense Method or Nominal Approach is used in recording the

prepayment, what is your adjusting journal entry on December 31, 2007?

Debit _________________________________

Credit_________________________________

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Q9. Regardless of what method is used in recording the prepayment,

a. How much amount of Prepaid Rent account will be shown in the Balance
Sheet/Statement of Financial Position? ____________________________

b. How much amount of Rent Expense account will be shown in the Income
Statement/Statement of Income? ___________________________

Case 2: The following errors were discovered by Doris Pateño, CPA in her
examination of the books of accounts of North Davao |Watch & TV Repairs,
owned and managed by Felina Barroga, just before closing on December 31,
2007.

Reconstruct the wrong entries prepared, the correct entries that should be
made, the would-be correcting entries. Utilize the space provided.

Q1. Cash received from a bank loan of the business in the amount of P80,000
was erroneously credited to capital account instead of Notes Payable.

Erroneous Entry Correct Entry Correcting Entry

Debit

Credit

Q2. Payment of rental expense in the amount of P30,000 was erroneously

recorded at P20,000.

Erroneous Entry Correct Entry Correcting Entry

Debit

Credit

Q3. Collection from customer’s account was erroneously credited to Service

Income instead of Accounts Receivable, P6,000.

Erroneous Entry Correct Entry Correcting Entry

Debit

Credit

Q4. Purchase of office supplies in the amount of P1,000 was erroneously

credited to Accounts Receivable instead of Accounts Payable. The amount
was also erroneously recorded at P10,000.

Erroneous Entry Correct Entry Correcting Entry

Debit

Credit

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EVALUATE

Name: _____________________________________ Time: _______________________

Instructions:

1. Explain accrual accounting and state how it improves financial

statements. (10pts)
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2. Explain the importance of periodic reporting and time period assumption.

(10 pts)

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3. Explain the recognition and derecognition process. (10 pts)

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4. Enumerate the types of adjustments and their purposes. (10 pts)

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5. Explain the alternative methods of recording deferrals. (10 pts)

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Post-Assessment

Name: _____________________________________ Time: _______________________

Case 1. Using the following table, indicate the effect of the following
errors of omission on the financial statement classification listed. If as
a result of the omission a classification is overstated, place (+) in the
appropriate space. An understatement is to be indicated by (-). If the
omission has no effect on the classification, place (o) in the appropriate
space.

Effect of Omiision
Classification
a b c d e f g
Revenues
Expenses
Profit
Total Assets
Total Liabilities
Owner's Equity

a. Payment for repairs erroneously debited to Building account.

b. Recorded collection of an accounts receivable by debiting cash and

crediting a revenue account.

c. Depreciation for the month was omitted.

d. Recorded twice an acquisition of office equipment on account.

e. Recorded the acquisition of office equipment for cash as a debit to

Office Equipment and a credit to Depreciation Expense.

f. Recorded cash payment for advertising by debiting Repairs Expense and

crediting Cash.

g. Rendered services for cash but made no record of the transaction.

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Case 2.

Richard Belarmino
Preliminary Trial Balance
December 31, 2019

Adjusted
Trial Balance Adjustments
Account Titles Trial Balance
Debit Credit Debit Credit Debit Credit
Cash in Bank 75,000
Accounts Receivable 65,000
Allowance for Uncollectible Accounts 500
Supplies 15,000
Office Equipment 60,000
Accumulated Depreciation-Office Equipment
Accounts Payable 10,000
Accrued Salaries
Belarmino, Capital 143,500
Service Income 85,000
Uncollectible Accounts
Depreciation Expense
Salaries Expense 24,000
Supplies Expense
Totals 239,000 239,000

The following omissions were discovered in the course of your examination.

a. Cash received from a customer for services rendered was not recorded
in the book. This is covered by Cash Sales Invoice No. 0132 dated
December 31, 2019, P5,000.

b. Allowance for uncollectible accounts should be adjusted to equal 1%

of the outstanding accounts receivable.

c. Office Equipment was acquired on July 1, 2019 with an estimated life

of 5 years without scrap value.

d. Payment to a supplier’s account in the amount of P10,000 was

inadvertently omitted. This is covered by Check Voucher No. 018
dated December 31, 2019.

e. Supplies that were actually on hand when physical counting was made,
P8,000.

f. Unpaid salaries as of December 31, 2019, P3,000.

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 Lesson 2
The Worksheet and Financial Statements

EXTEND
Name: _____________________________________ Time: _______________________

1. Describe the flow of accounting information from the unadjusted trial

balance into the adjusted trial balance and finally, into the income
statement and balance sheet columns of the worksheet. (10 pts)

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2. What are the five (5) basic financial statements and discuss the
usefulness of each statement. (25 pts)

a. _________________________________________________________________
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b. _________________________________________________________________
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c. _________________________________________________________________
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d. _________________________________________________________________
_________________________________________________________________
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e. _________________________________________________________________
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3. Explain how the five (5) basic financial statements are interrelated.
(10pts)
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 _____________________________________________________________________
EVALUATE

Name: _____________________________________ Time: _______________________

Queen City Videotape

Trial Balance
December 31, 2019

Account Titles Debit Credit

Cash in Bank 125,000
Accounts Receivable 30,000
Allowance for Uncollectibe Accounts
Unused Supplies 10,000
Videotape Inventory 105,000
Furniture and Fixtures 80,000
Accumulated Depreciation-Furniture and Fixtures
Notes Payable 50,000
Accounts Payable 35,000
Accrued Interest
Edgar Detoya, Capital 162,000
Edgar Detoya, Withdrawals
Rental Income 180,000
Other Income 18,000
Uncollectible Accounts
Depreciation Expense
Interest Expense
Damaged Videotape
Supplies Used
Salaries Expense 95,000
Total 445,000 445,000

The following errors and omissions were discovered at year-end prior to

closing of the books:
a. Uncollectible accounts should be provided at 1% of the outstanding
receivable balance.
b. Actual cost of supplies used amounted to P6,000.
c. Physical inventory conducted on December 31, 2019 were found to have
P15,000 cost of videotapes to have been damaged.
d. Furniture was acquired on October 1, 2019 with an estimated life of 5
years and with a scrap value of P5,000 at the end of its life.
e. Owner’s withdrawal was erroneously charges to salaries expense,
P20,000.
f. Interest on Notes Payable has been accrued, P4,000.
g. Payment for the purchase of videotapes on account was not recorded,
P15,000.

Required:
1. Prepare a 10-cloumn worksheet with adjusting entries. Use the form
below.

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Acct Account Title Trial Balance Adjustments Adjusted Trial Balance Statement of Income Statement of Financial Position
Code Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit

2. Prepare the Statement of Income, Statement of Changes in Equity, and

Statement of Financial Position. (use yellow paper for your answer)

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Post-Assessment

Name: _____________________________________ Time: _______________________

Instructions: Multiple Choice. Encircle your letter of choice and show your
solution. No solution, no points. Each item is given 3 points credit.

Q1 – Q5. Use the following information to answer questions Q1 to Q5 below.

Villanueva has the following balance sheet accounts and balances:

Accounts Payable 60,000 Equipment 70,000

Accounts Receivable 10,000 Arlyn Villanueva, Capital ?
Building ? Land 70,000
Cash 30,000

Q1. If the balance of the Villanueva, Capital account was P210,000, what
would be the balance of the Building account?
a. 250,000
b. 40,000
c. 90,000
d. 210,000

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Q2. If the balance of the Building account was P170,000, what would be the
total of liabilities and owner’s equity?
a. 170,000
b. 270,000
c. 320,000
d. 350,000

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Q3. If the balance of the Building account was P150,000 and the equipment
was sold for 70,000, what would be the total of owner’s equity?
a. 150,000
b. 160,000
c. 270,000
d. 330,000

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Q4. If the balance of the Building account was 140,000 and 30,000 of
Accounts Payable were paid in cash, what would be the balance of the
Villanueva, Capital account?
a. 210,000
b. 260,000
c. 320,000
d. 340,000

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Q5. If the balance of the Building account was 80,000 and 30,000 of
Accounts Payable was paid in cash, what would be the total liabilities and
owner’s equity?
a. 140,000
b. 180,000
c. 190,000
d. 230,000

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Q6 – Q8. Use the following information to answer questions Q6 to Q8 below.

The following is the balance sheet for Noeme Par Day care:

Noeme Par Day Care

Balance Sheet
December 31, 2018

Assets Liabilities
Cash 80,000 Accounts Payable 160,000
Accounts Receivable 10,000
Land 140,000 Owner's Equity
Building 440,000 Par, Capital 640,000
Equipment 130,000
Total Assets 800,000 Total Liabilities and Owner's Equity 800,000

Q6. If the balance in the Cash account were used to pay part of Accounts
Payable, then total liabilities and owner’s equity would;
a. decrease by 80,000
b. decrease by 160,000
c. increase by 80,000
d. increase by 160,000

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Q7. If the equipment were sold for 130,000, then the Par,Capital account:

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a. decrease by 130,000
b. increase by 130,000
c. increase by 370,000
d. stay the same

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Q8. If the balance in the Cash account were used to buy more equipment,
then the total assets would;
a. decrease by 80,000
b. increase by 80,000
c. increase by 210,000
d. remain unchanged

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Q9 – Q15. Reynaldo San Mateo, an angel investor, decided to invest

1,200,000 excess cash in a certificate of deposit on April 1, 2017. This
certificate carried an 8% annual rate of interest and a 1-year term to
maturity. Interest will be withdrawn monthly (disregard tax effects).
Q9. What amount of income will be recognized for the year ending December
31, 2017?

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Q10. What is the effect of the adjusting entry on the accounting equation?

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Q11. What amount of cash will be collected for interest revenue in 2017?

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Q12. What is the amount of interest receivable as of December 31, 2017?

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Q13. What amount of cash will be collected for interest revenue in 2018?

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Q14. What amount of interest revenue will be recognized in 2018?

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Q15. What is the amount of interest receivable as of December 31, 2018?

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Lesson 3

13
 Completing the Accounting Cycle

EXTEND
Name: _____________________________________ Time: _______________________

Instructions: For each adjusting entries, prepare the reversing entries if

necessary, if not, state your reasons for not making an entry.

ADJUSTING ENTRIES REVERSING ENTRIES

1 Uncollectible Accounts Expense 1,100

Accumulated Depreciation 1,100

2 Utilities Expense 1,500

Utilities Payable 1,500

3 Depreciation 3,200
Accumulated Depreciation 3,200

4 Unearned Interest Income 800

Interest Income 800

5 Salaries and Wages 650

Salaries and Wages Payable 650

6 Unused Office Supplies 300

Office Supplies Expense 300

7 Prepaid Insurance 500

Insurance Expense 500

8 Rent Expense 1,300

Rent Payable 1,300

9 Rent Income 1,800

Unearned Rent Income 1,800

10 Commission Income 600

Unearned Commission Income 600

11 Interest Receivable 750

Interest Income 750

12 Fuel and Oil 800

Fuel and Oil Payable 800

13 Laundry Supplies Expense 1,000

Laundry Supplies 1,000

14 Advertising Expense 2,000

Advertising Payable 2,000

15 Unearned Rent Income 5,000

Rent Income 5,000

EVALUATE

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Name: _____________________________________ Time: _______________________

Instructions: Encircle the number of your choice and support your answer
with a solution: (5 pts each)

Item 1 through 4 is based on the following data: The following were the
unadjusted ledger balances of Ms. Arabela Grace Espina, owner of San Isidro
Micro-Lending Services as of December 31, 2019:

Cash in Bank P205,000

Accounts Receivable 190,000
Accounts Payable 40,000
Espina, Capital 275,000
Revenue 120,000
Expenses 40,000

Additional Information:
1. Official Receipt No. 00509 in the account of P3,500 representing
collection from customers' account and Check No. 089571 in the amount
of P8,000 representing payment of account were inadvertently omitted
from the records.

2. Direct write-off was made on Accounts Receivable amounting to P6,000

because of the death of the customer.

3. Accrued Expense and Accrued Interest Income of P4,000 and P10,000

respectively are to be recognized.

Q-1. The amount of cash in bank" that should be shown in the Balance Sheet
as of December 31, 2019 would be
a. P197,000
b. P200,500
c. P205,500
d. P209,000

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Q-2. The correct balance of Espina, Capital as at December 31, 2019 would
be –
a. P350,000
b. P355,000
c. P361,000
d. P363,000

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Q-3. The correct balance of Asset Account excluding cash in bank as of
December 31, 2019 would be
a. P187,000
b. P190,000
c. P197,000
d. P199,000

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Q-4. The correct liability account that should be shown in the Balance
Sheet as of December 31, 2019 would be
a. P28,000
b. P30,000
c. P32,000
d. P36,000

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Item 5 is based on the following data: Kristine Uy Allied Services uses the
accrual basis of accounting for Revenue and Expense. At the end of the
period, the accountant prepares in part a modified single–step of an income
statement as follows:

Net Operating Profit 150,000

Other Revenue 8,000
Operating Expenses 250,000

Q-5. What is the estimated revenue at the end of the period?

a. P380,000
b. P392,000
c. P400,000
d. P410,000

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Item 6 through 7 is based on the following data: The following data for
adjustments comprises the accounts to be closed at the end of December
2019:

1. Accounts Receivable in the amount of P200,000 has 98% probability of

collection.

2. Unused Supplies was P30,000 of which P5,000 cost of supplies were found
to be on hand.

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3. Prepaid rental of P24,000 was paid on May 1, 2019 which covers one-year
period from May 1, 2019 to May 1, 2020.

4. An equipment was acquired at a cost of P60,000 with estimated economic

life of 5 years on April 30, 2019.

Q-6. Assuming that the estimated revenue was P50,000, how much profit or
loss at the end of the period?
a. P24,000 profit
b. P 3,000 loss
c. P18,000 loss
d. P27,000 loss

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Q-7. What should be the correct amount of expenses to be closed to the

Income and Expense Summary?

a b c d
Uncollectible Accounts Expense 2,000 4,000 5,000 6,000
Unused Supplies 15,000 25,000 25,000 30,000
Prepaid Rent 3,000 16,000 18,000 20,000
Depreciation 6,000 8,000 20,000 21,000

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Q-8. Explain why temporary accounts are closed at the end of an accounting
period.

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Post-Assessment

Name: _____________________________________ Time: _______________________

Bohol Pension House

Unadjusted Trial Balance
December 31, 2019

Account Titles Debit Credit

Cash in Bank 50,000
Petty Cash Fund 1,500
Accounts Receivable 60,000
Allowance for Uncollectible Accounts 8,000
Prepaid Insurance 2,800
Prepaid Interest (Bank Loan) 20,000
Unused Supplies 8,000
Building 950,000
Accumulated Depreciation-Building 10,000
Furniture and Fixtures 175,000
Accumulated Depreciation-Furniture and Fixtures 7,500
Notes Payable (Bank Loan) 785,000
Becerro, Capital 411,500
Becerro, Withdrawals 8,000
Hotel Income 144,400
Taxes and Licenses 12,880
Telephone and Postage 12,120
Laundry Expense 15,000
Professional Fees Expense 12,600
Salaries and Wages Expense 25,000
Utilities Expense 13,500
Totals 1,366,400 1,366,400

Data for Adjustments:

 Provision for uncollectible accounts should be increase by P2,000.
 Unpaid salaries and wages, P8,000.
 Building is depreciated at 10% while Furniture and Fixtures, 20%
annually.
 Interest on bank loan applicable for this period, P5,000.
 Supplies actually on hand, P75,500.
 P800 of the insurance premium paid in advance has expired.
 Cash payment by a customer covered by invoice No. 0085 dated December
31 in the amount of P3,800 was not recorded (Hotel Income).

Required:
1. 10-column Worksheet (attached form)
2. Statement of Income (Yellow Paper)
3. Statement of Changes in Equity (Yellow Paper)
4. Statement of Financial Position (Yellow Paper)
5. Adjusting Journal Entries (attached form)
6. Closing Journal Entries (attached form)
7. Post-Closing Trial Balance (attached form)
8. Reversing Journal Entries (attached form)

1) 10-Column Worksheet

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5) Adjusting Journal Entries

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6) Closing Journal Entries

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7) Post-Closing Trial Balance

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8) Reversing Journal Entries

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Date Account titles and Explanation P .R. Debit Credit

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