Adjusting Entries A. Short Problems

ADJUSTING ENTRIES
A. SHORT PROBLEMS
1. ABC Company entered into a short-term loan agreement with the bank to finance its working capital. On
August 15, 2020, the company borrowed Php1,000,000 with an 8% interest per annum payable after 6
months. How much is the interest expense for the year ended December 31, 2020?
2. On May 31, 2020, DEF Company entered into a 10-year lease contract with one of its tenants. The lessee
paid a security deposit of Php100,000 and an advance rent of Php60,000 applicable during the first 3
months of the lease term and is also equivalent to the monthly rental during the first year of the lease term.
An escalation rate of 5% was agreed every year starting the second year of the lease term.
a. How much is the lease revenue for the year ended December 31, 2020?
b. How much is the lease revenue for the year ended December 31, 2022?
3. The company purchased a vehicle worth Php500,000 with a residual value of P20,000. The vehicle will be
used by the company for 3 years. How much is the net book value of the vehicle after 3 years?
4. The company paid for the software fee amounting to Php1,200,000 for 1-year. There’s 3 months left prior
to the end of the year.
a. How much is the amount to be recorded in the balance sheet at the end of the year?
b. Prepare entries using the asset and expense method at the end of the year.
5. On March 1, 2020, the company purchased clinic supplies that will be used for 6 months. Unfortunately,
the bookkeeper inaccurately recorded the transaction twice. The company uses the asset method in
recording the purchase of supplies. The erroneous entry was not corrected at the end of the fiscal year April
30, 2020. As of April 30, 2020, balance of the clinic supplies was Php80,000.
a. Assuming that the amortization of the clinics supplies was accurate based on the erroneous entries
recorded, how much was the purchase price?
b. Prepare adjusting entries to correct the books.
c. How much is the adjusted balance of the clinic supplies as of April 30, 2020?
6. GHI Company paid its employees weekly at Php1,200 per hour. The year ended on a Wednesday.
Assuming there are 5 employees and are working on a 40-hour work shift.
a. How much is the salaries expense for the last week of the year?
b. How much of the salaries will be carried over the succeeding year?
B. LONG PROBLEM
Presented below is the Trial Balance of ABC Company as of December 31, 2020.
ABC Company
Trial Balance
De ce mbe r 31, 2020
De bit Cre dit

Cash 4,000,000.00
Accounts Receivable 1,150,000.00
Inventory 1,000,000.00
Prepaid Insurance 900,000.00
Equipment 1,200,000.00
Accounts Payable 3,500,000.00
Loans Payable 1,500,000.00
Share Capital 2,500,000.00
Revenue 6,000,000.00
Cost of Goods Sold 3,000,000.00
Salaries and Wages 1,000,000.00
Transportation Expense 450,000.00
Supplies Expense 800,000.00
Total 13,500,000.00 13,500,000.00
Below are some of the transactions that occur during the year 2020.
1. The company entered into a loan agreement with the bank on March 1, 2020 to finance its purchase of the
vehicle. The loan agreement is for 1 year with an annual interest of 8%. Interest will be paid at the end of
the term of the loan.
2. As of December 31, 2020, the company has not yet delivered the Php500,000 worth of goods but
immediately recorded it in its books as a receivable from its customer and a deduction in inventory.
3. The cost of goods sold of the company is 70% of its revenue. All goods sold by the company is
immediately deducted from its inventory.
4. The company directly expensed all its purchased office supplies. It usually purchases supplies that will be
used for 6 months. The bookkeeper recorded its last purchase on October 1, 2020 as an expense amounting
to P300,000.
5. On January 1, 2020, the company purchased the vehicle on account. This vehicle will be used for 3 years to
deliver its goods. The company uses the straight – line method of depreciation. As of December 31, 2020,
the bookkeeper accurately recorded the amount of depreciation. The transaction resulted to an increase in
the transportation expense and accounts payable.
6. On May 1, 2020, the company decided to purchase a 1-year policy to ensure the safety of its vehicle.
7. The company pays its employees every 15th and 31st of the month. Salaries and wages for the month of
December are Php500,000 and Php500,000 for the first and second half, respectively.
8. The company received cash for a reservation of goods worth Php750,000 on December 31, 2020.
Unfortunately, due to the bulk of the transaction during year – end, the bookkeeper just kept the money in
the vault.
A. Prepare adjusting entries based on the transaction above.

B. Prepare the Adjusted Trial Balance for December 31, 2020.

Adjusting Entries A. Short Problems

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ADJUSTING ENTRIES

De bit Cre dit

A. Prepare adjusting entries based on the transaction above.

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