Answer Key - Quizzer On AJE

Polytechnic University of the Philippines
Seeds of the Nations

Accounting Tutorials: Adjusting Entries
A Company reported the following balances on its unadjusted trial balance as of December 31, 2021:
Assets P120,000
Liabilities 30,000
Equity 40,000
Revenues 120,000
Expenses 70,000
The following adjustments were noted:
a. Office supplies ending balance, P14,000. The office supplies account had a balance of P7,500 on January 1, 2021. Office
supplies purchased for the year amounts to P23,000 which was debited toa real account.
Initial Entry using Asset Method: Adjusting Entry:

Office Supplies 23,000.00 Office Supplies Expense 16,500.00
Cash 23,000.00 Office Supplies 16,500.00
Office Supplies
Bal., 1/1 7,500.00 16,500.00 Used
Purchases 23,000.00
Bal., 12/31 14,000.00
b. Total premium paid on October 1, 2021 was P12,000 for a two-year fire insurance policy. This was initially recorded as
expense.
Initial Entry using Expense Method: Adjusting Entry:

Insurance Expense 12,000.00 Prepaid Insurance 10,500.00
Cash 12,000.00 Insurance Expense 10,500.00
Insurance Expense for 2021 = P12,000.00 / 24 mos. (coverage) X 3 months (Oct 1-Dec 31)
Insurance Expense for 2021 = P1,500.00
Ending balance of premium as of Dec. 31, 2021 = Total premium paid less expired portion/insurance exp.
Ending balance of premium as of Dec. 31, 2021 = P12,000.00 – P1,500.00
Ending balance of premium as of Dec. 31, 2021 = P10,500.00
c. Depreciation of office equipment purchased on August 1, 2021 with a depreciable amount of P120,000, annual
depreciation of 20% based on straight line method and a residual value of P30,000.
Adjusting Entry:
Depreciation Expense 10,000.00
Accumulated Depreciation 10,000.00
Depreciation Expense for 2021 = P120,000.00 (depreciable cost) X 20% X 5/12 (Aug 1-Dec 31)
Depreciation Expense for 2021 = P10,000.00
d. Rent income received from tenant on September 1, 2021 representing six months’ rent amounted to P18,000. This was
recorded as a credit to a nominal account.
Initial Entry using Revenue Method: Adjusting Entry:

Cash 18,000.00 Rent Income 6,000.00
Rent Income 18,000.00 Unearned Rent 6,000.00
Rent Income for 2021 = P18,000.00 / 6 mos. (coverage) X 4 months (Sept 1-Dec 31)
Rent Income for 2021 = P12,000.00
Ending balance of cash received as of Dec. 31, 2021 = Total cash received less expired portion/rent income
Ending balance of cash received as of Dec. 31, 2021 = P18,000.00 – P12,000.00
Ending balance of cash received as of Dec. 31, 2021 = P6,000.00
e. The Company issued a note for P150,000 for its October 29 purchase of merchandise. The note isdated on the same
date, matures in 90 days and bears 12% interest. The Company’s policy is to round off dates to the nearest half-month
and uses a 360-day year for interest computations.
Adjusting Entry:
Interest Expense 3,000.00
Interest Payable 3,000.00
Interest Expense for 2021 = P150,000.00 X 12& X 2/12 (Oct 31-Dec31)

Interest Expense for 2021 = P3,000.00
f. An allowance for doubtful accounts of 5% of the accounts receivable amounting to P30,000 is to be established.
Adjusting Entry using Allowance Method:

Doubtful Accounts Expense 1,500.00
Allowance for Doubtful Accounts 1,500.00
Doubtful Accounts Expense for 2021 = P30,000.00 X 5%

Doubtful Accounts Expense for 2021 = P1,500.00
1. Determine total amount of net income on December 31,2021.

2. Determine total amount of assets on December 31,2021.
3. Determine total amount of liabilities on December 31,2021.
4. Determine total amount of equity on December 31,2021.
Asset Liabilities Equity

Equity, beg. Revenues Expenses
Unadjusted 120,000.00 30,000.00 40,000.00 120,000.00 70,000.00
Adjustments
a) (16,500.00) 16,500.00
b) 10,500.00 (10,500.00)
c) (10,000.00) 10,000.00
d) 6,000.00 (6,000.00)
e) 3,000.00 3,000.00
f) (1,500.00) 1,500.00
Adjusted 102,500.00 39,000.00 40,000.00 114,000.00 90,500.00
(2) (3)
Revenues 114,000.00 Equity, beg. 40,000.00

Expenses 90,500.00 Net Income 23,500.00
Net Income 23,500.00 (1) Equity, end. 63,500.00 (4)

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Polytechnic University of the Philippines

Seeds of the Nations

The following adjustments were noted:

Initial Entry using Asset Method: Adjusting Entry:

Initial Entry using Expense Method: Adjusting Entry:

Initial Entry using Revenue Method: Adjusting Entry:

Interest Expense for 2021 = P150,000.00 X 12& X 2/12 (Oct 31-Dec31)

Adjusting Entry using Allowance Method:

Doubtful Accounts Expense for 2021 = P30,000.00 X 5%

1. Determine total amount of net income on December 31,2021.

Asset Liabilities Equity

Revenues 114,000.00 Equity, beg. 40,000.00

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