BSA11 AJE Lecture Materials & Seatworks Activities OCT 1 2024 PDF

THE PREPARATION OF ADJUSTING JOURNAL ENTRIES THE SIGNIFICANCE OF THE “ADJUSTING JOURNAL ENTRIES” 1. The Adjusting Journal Entries (AJE) are entries generally prepared at the end of the accounting period to keep the balances of the account be updated to correct or adjusted balances as...

THE PREPARATION OF ADJUSTING JOURNAL ENTRIES THE SIGNIFICANCE OF THE “ADJUSTING JOURNAL ENTRIES” 1. The Adjusting Journal Entries (AJE) are entries generally prepared at the end of the accounting period to keep the balances of the account be updated to correct or adjusted balances as the basis of preparing and presentation of a fair financial statements. 2. The AJE are necessary to determine appropriately the profit or loss of the business entity for a certain accounting period. 3. It provides the proper recognition of revenues and expense that will reflect the economic impact of all business transactions that transpired at the end of the accounting period. 4. AJE permits to record revenues to the period in which they are earned, and expenses to the period in which they are incurred, regardless whether there is cash received or cash payment involved. THE ACCOUNTING PERIOD 1. Accounting period is the subdivided economic life of the business entity that allows the preparation of the financial statements at a regular interval. 2. The standard requires that the financial statements shall be prepared at least annually. 3. Other accounting period is called an “interim period” which is less than one year. Normally, it includes monthly, quarterly or semi-annual accounting period. 4. An interim accounting period permits the preparation of the financial statements in a regular interval that can be used as basis for future planning and decision making by the users of the financial statements. 5. Common accounting periods are calendar and fiscal period. Calendar Period - is a twelve-month accounting period that covers from January 1 and end December 31 of the year. Fiscal Period – is a twelve-month accounting period that starts other than January 1 and ends other than December 31. Examples are period covering February 1 to January 31 of the following year, March 1 to April 30 of the following year and April 1 to May 31 of the following year. Page | 1 DISTINCTION BETWEEN CASH ACCOUNTING AND ACCRUAL ACCOUNTING CASH ACCOUNTING 1. In this method, income is recorded only when cash is received; and expenses is recognized only when paid. 2. There is no “receivables or payables” account in this method of accounting ACCRUAL ACCOUNTING 1. Under this method, income is recorded or recognized when goods are delivered or services are rendered whether paid in cash by customer or not ( on account); and expenses are recognized or recorded when incurred even there is no cash payment yet (on account). 2. Common adjustment in this method are: DEFERRALS – It is the recognition of “an expense already paid but not yet incurred,” or of “revenue already collected but not yet earned” Following are the common accounts for adjustments under deferrals: a. Adjustment for prepaid expenses to record expired portion such as prepaid rent, prepaid insurance b. Adjustment to record depreciation expenses for depreciable assets such as building, equipment, furniture, machineries c. Adjustment to record income earned from advance payment from customers (precollected income) such as unearned rent income, unearned interest income d. Adjustment to record expenses of the used asset such as supplies ACCRUALS – It is the recognition of “an expense already incurred but unpaid’, or “revenue earned but uncollected” Following are the common accounts for adjustments under accruals: a. Adjustment to record unrecorded income or accrued income; this arises to “receivables” account b. Adjustment to record unrecorded expenses or accrued expenses; this arises to “payables” account c. Adjustment to record doubtful accounts (bad debts/uncollectible accounts) of the account receivables d. Adjustment to set up ending inventory account (for merchandising business) THE PRINCIPLES OF REVENUE AND EXPENSES REVENUE RECOGNITION PRINCIPLES 2 | Page  1. The principle tells that revenue is recognized when it is probable that economic benefits will flow to the enterprise and these economic benefits can be measured reliably. 2. Also, revenue is recognized when the services are rendered or the goods are delivered to the customers. EXPENSE RECOGNITION PRINCIPLES 1. This principle justifies that expenses are recorded or recognized in the statement of income when it is probable that a decrease in future economic benefit related to a decrease in an asset or an increase of liability has arisen, and that the decrease in economic benefits can be measured reliably. 2. The principle provides that all expenses incurred during the accounting period shall be matched to the revenues earned within the same accounting period also to achieve determination of profit or loss for the period. EFFECTS OF OMITTING OR FAILURE TO RECORD ADJUSTING JOURNAL ENTRIES 1. When the adjusting journal entries are failed or omitted to record at the end of the accounting period, the account balances of some accounts may not be adjusted or corrected, and therefore, will not provide a fair presentation of the financial statements. 2. The omissions will results to understatement or overstatement of some account balances. 3. When AJE is failed to prepare at the end of the period, the incorrect balances of some account may be forwarded to the next accounting period; and the errors would probably continue that makes the financial statements unreliable. Page | 3 ILLUSTRATIONS OF AJE ADJUSTMENTS FOR DEFERRAL Following are the independent cases in preparing AJE on a monthly basis Transaction Original Entry Analysis and the Computation Effect of Omission of the AJE Adjusting entry On August 1, Iyana A L EQ I EX NP Printing Press paid P6, Prepaid Rent 6,000 Inc. Ex : Rent Expense 3,000 P6000/2mos=P3000 per Os Ne Os Ne Us Os 000 for two months’ month rent in advance. Cash 6,000 Dec. A : Prepaid Rent 3,000 P3000 x 1 month expired= P3000 Legend: A=Asset; L=Liability; EQ=Equity; I=Income; Ex=Expense; NP=Net Profit; Os=Overstated; Us=Understated; Ne=No effect Transaction Original Entry Analysis and the Computation Effect of Omission of the AJE Adjusting entry On September 2, Iyana A L EQ I EX NP Printing Press paid in Prepaid Insurance 18,000 Inc. Ex : Insurance Exp. 6,000 P18000/3mos=P6000 per Os Ne Os Ne Us Os advance P18, 000 for month three months’ Cash 18,000 Dec. A : Prepaid Insurance 6,000 P6000 x 1 month expired= insurance. P6000 Transaction Original Entry Analysis and the Computation Effect of Omission of the AJE Adjusting entry Purchased on account A L EQ I EX NP office supplies Office Supplies 10,000 Inc. Ex : Supplies Exp. 7,000 P10,000 – P3,000=P7,000 is Os Ne Os Ne Us Os amounting to P10, 000 the amount of supplies used on October 2. At the Accounts Payable 10,000 Dec. A : Office Supplies 7,000 end of the month, P3,000 of the supplies is on hand. 4 | Page Depreciable assets such as building, equipments, machineries, furniture and fixtures are properties utilized by the business enterprise to generate income for the entity. Therefore, as the asset is being used in every accounting period, a portion of the cost of the assets should be reported as expense in each accounting period. These require the allocation of the cost of the asset over its estimated useful life. The allocated cost to any one accounting period is called depreciation or depreciation expense. There are three importance factors involved in computing the depreciation expense: Asset cost Accordingly, the book value or carrying value of the It is the amount an entity paid to acquire the depreciable asset. asset can be computed as follows: Cost of Asset xx Estimated salvage value Less: Accumulated Depreciation xx Is the amount that the asset can probably be sold for at the end of its Book Value / Carrying Value xx estimated useful life. Estimated useful life Is the estimated number of period that an entity can make use of the asset. Useful life is an estimate, not an exact measurement. It is normally expressed in number of years. Page | 5  Transaction Original Entry Analysis and the Computation Effect of Omission of the AJE Adjusting entry Bought office Cost 110,000 A L EQ I EX NP equipment (computer) Office Equipment 110,000 Inc. Ex : Depreciation Exp. 1,667 Less: Est. Salvage Value 10,000 Os Ne Os Ne Us Os on November 1 in cash Cash 110,000 Dec. A : Accum. Dep’n-OE 1 667 Depreciable Cost 100,000 amounting to P110, Divided by: Est. Useful Life 5 yrs 000. The equipment Annual Depreciation 20,000 has an estimated life of 5 years and with Divided by: 12 months 12 salvage value of Monthly Depreciation 1,667 P10,000 at the end of its life. The company uses the straight method of depreciating a depreciable asset. There are cases when an enterprise receives advance cash payment from the customer but the services have not rendered or the goods are not delivered yet. When such payment is received in advance, the entity has an obligation to perform services or deliver goods in the future and this create a liability referred to as unearned service revenue or unearned sales revenue. Transaction Original Entry Analysis and the Computation Effect of Omission of the AJE Adjusting entry On March 2, Iyana A L EQ I EX NP Printing Press received Cash 30,000 Dec L: USR 10,000 P30, 000 / 3 mos. = P10,000 per Ne Os Us Us Ne Us an advance payment month from the customer Unearned Service Inc. I : Service Rev. 10,000 P10,000 x 1 month = P10,000 amounting to P30,000. earned for the month of March The service is to be Revenue(USR) 30,000 performed for three months starting this month. 6 | Page ADJUSTMENTS FOR ACCRUAL Transaction Analysis and the Computation Effect of Omission of the AJE Adjusting entry At the end of the month of April, the company A L EQ I EX NP was unable to pay salaries of the employees Inc. Ex : Salaries Exp. 15,000 150 hours x P100/hr = P15,000 Ne Us Os Ne Us Os with total of 150 hours. The average salary Inc. L : Salaries Payable 15,000 rate per hour is P100. The company intended to pay this the following month. Transaction Analysis and the Computation Effect of Omission of the AJE Adjusting entry On October 2, 2015, Iyana Printing Press Interest = Principal x interest x A L EQ I EX NP borrowed P400, 000 from BDO. The entity Time issued a 6 months promissory note that Inc. Ex : Interest Exp. 6,000 Ne Us Os Ne Us Os carried a 6% interests per annum. The Inc. L : Interest Payable 6,000 400,000 x.06 x 3/12 = 6,000 interest and principal will be paid on March 31, 2016, the maturity date. Transaction Analysis and the Computation Effect of Omission of the AJE Adjusting entry Iyana Printing Press received the electricity A L EQ I EX NP bill for the month of August 2015. The bill Inc. Ex : Utility Exp. 12,000 Ne Us Os Ne Us Os indicated a total usage of 1500 hours. The Inc. L : Utility Payable 12,000 1,500 hours x P8 per hour = current rate per hour of the electricity P12,000 consumption is P8. The business entity planned to pay this on September 2015. In some instances, a business entity may provide services during the period that are neither paid for by customer nor billed at the end of the period. The amount of these services represent revenue already earned by the entity but has no cash collection made yet for the period. This accrual requires adjusting entry at the end of the accounting period. The adjusting entry recognizes an asset account to be debited and income account to be credited. Page | 7  Transaction Analysis and the Computation Effect of Omission of the AJE Adjusting entry For the month of October 2015, Iyana A L EQ I EX NP Printing Press rendered service to the Inc. A : Accounts Receivable 25,000 Us Ne Us Us Ne Us customer amounting to P25,000, which is Inc. I : Service Income 25,000 Amount is given, no need of earned but unbilled. The customer planned computation to pay this the following month. In a normal operation of the business enterprise, it often allows clients to render service on credit. However, some of these accounts uncollectible probably due to bankruptcy of the involved customer or the customer is nowhere to be found; hence, there is a need to reflect these as charges/deduction against income. In practice, an expense is recognized for the estimated uncollectible accounts on the current period. This practice produces a better matching of income and expenses. Estimates of uncollectible accounts may be based on credit sales for the period or on the accounts receivable balance. Transaction Analysis and the Effect of Omission of the AJE Adjusting entry On December 1, 2015, an entity made credit A L EQ I EX NP service of P50,000 However, the entity has Inc. Ex : Uncollectible Accounts Expense 1,000 Os Ne Os Ne Us Os experience of uncollectibility of the receivables. Dec. A : Allowance for Uncollectible Accounts 1,000 Per records, it indicates that an average of 2% per month is uncollectible. Computation: 50,000 x 2% = 1,000 8 | Page THE PREPARATION OF FINANCIAL STATEMENTS 1. The financial statements are the means by which the information accumulated and processed in financial accounting is periodically communicated to the users to come up with the effective economic decision-making. 2. It shall be recalled that the main goal of financial statements is to provide quantitative information about the financial position, financial performance, and cash flows of an entity. 3. The complete set of the financial statements required by the Philippines Financial Reporting Standard are the following: a. Statement of Income – it is a statement showing the results of operation, its income earned and expenses incurred from which net profit or loss is determined. Other names are Statement of Profit and Loss and Statement of Operations. b. Statement of Changes in Equity –is a statement that shows the changes that occur in the equity or capital of the business. c. Statement of Financial Position – is the statement that provides the real condition of the business as to assets, liabilities and equity as of the certain period. It is formerly known as Balance Sheet. Also called Statement of Financial Condition. d. Statement of Cash Flows – it is the statement that will show the sources and uses of cash during the period it is reported. e. Statement of Comprehensive Income – is the statement that show not only the result of entity’s operation for the period but it also includes other income items that transpired during the accounting period such as forex translation gain or loss. f. Notes to Financial Statements – It contains relevant notes or disclosure for the users of the financial statements that supports the contents in the face of financial statements for more understanding of the statements. 4. In the next page is an example of the financial statements. Page | 9 An Illustration of the Financial Statements IYANA MELGAR REPAIR SHOP IYANA MELGAR REPAIR SHOP IYANA MELGAR REPAIR SHOP Statement of Income Statement of Changes in Equity Statement of Financial Position For the month ended January 31, 2015 For the month ended January 31, 2015 As of January 31, 2015 Revenues: Melgar, Capital, Beginning P 3 000 ASSETS Repair Income P 2 550 Add: Net Profit 980 Cash P 3 500 Other Income 50 Additional Investment 1 000 Accounts Receivable 1 000 Total 2 600 Supplies 500 Total P 4 980 Less: Expenses Prepaid Rent 2 500 Salaries Expense P 750 Less: Melgar, Withdrawal 480 Total P 7 500 Utilities Expense 240 Melgar, Capital, Ending P 4 500 Supplies Expense 130 LIABILITIES Rent Expense 100 Accounts Payable P 1 200 Interest Expense 150 Salaries Payable 800 Transportation Exp 200 Utilities Payable 1 000 Other Expenses 50 1 620 Total 3 000 Net Profit (Loss) P 980 EQUITY Melgar, Capital, Ending 4 500 Total Liab. and Equity P7 500 Note: All amounts are assumed Note: All amounts are assumed Note: All amounts are assumed 10 | Page ILLUSTRATION – PREPARATION OF ADJUSTING JOURNAL ENTRIES, WORKSHEET AND FINANCIAL STATEMENT (Step 5, 6) DATA ADJUSTING JOURNAL ENTRIES HERE! Mary Melgar is a Certified Public Accountant specializing in audit of financial statements. Provided below is the unadjusted trial balance as of December MARY MELGAR, CPA 31, 2015: Adjusting Journal Entries MARY MELGAR, CPA For the year Ended December 31, 2015 Unadjusted Trial Balance As of December 31, 2015 Analysis Account Title Dr Cr Account Account Title Debit Credit Code a. To record the used supplies 101 Cash 75 000 Inc. Exp Supplies Expense 6 000 102 Office Supplies 8 000 Dec. Asset Office Supplies 6 000 103 Prepaid Insurance 12 000 8 000 – 2 000 = 6 000 used 104 Office Equipment 150 000 105 Computer Equipment 60 000 b. To record the depreciation for office equipment Inc. Exp Depreciation Expense 15 000 201 Notes Payable 50 000 Dec. Asset Accumulated Dep’n - OE 15 000 202 Accounts Payable 5 000 150 000 / 10 years = 301 Melgar, Capital 114 000 15 000 annual depreciation 302 Melgar, Drawing 35 000 401 Audit Fee Revenue 390 000 c. To record the depreciation for computer equipment 501 Rent Expense 50 000 Inc. Exp Depreciation Expense 5 000 502 Salaries Expense 120 000 Dec. Asset Accum. Dep’n - CE 5 000 503 Communication Expenses 10 000 60 000 / 6 years = 10 000 x 6/12 = 5 000 6 mos. dep’n 504 Utilities Expenses 39 000 505 Total 559 000 559 000 d. To record the expired insurance premium Following are the additional information for adjustments: Inc. Exp Insurance Expense 1 000 Dec. Asset Prepaid Insurance 1 000 a. Office supplies on hand at year-end amounted to 2 000. 12 000 / 12 years = 1 000 x 1 month=1 000 expired portion b. The office equipment was purchased on January 2, 2015 with estimated life of 10 years with no salvage value. e. To record unpaid salaries c. Computer equipment which was purchased on July 1, 2015 has an Inc. Exp Salaries Expense 3 000 estimated life of 6 years with no residual value. Inc.Liab Salaries Payable 3 000 d. A premium of 12 000 for one year insurance was paid on December 1, 2015. f. To record unpaid utilities e. Salaries of the employees is unpaid at year end, P3 000. Inc. Exp Utilities Expense 2 000 f. Electric and water bill is to be paid the next year, P 2 000. Inc.Liab Utilities Payable 2 000 Page | 11  SEATWORKS LAST NAME DATE SCORE FIRST NAME SCHEDULE ITEMS ID. NO. PROFESSOR %AGE SEATWORK 1. IDENTIFY THE FOLLOWING STATEMENTS WHETHER TRUE OR FALSE 1. ___________ Adjusting Journal Entries (AJE) are entries generally prepared at the beginning of the accounting period. 2. ___________Adjusting entries keep the balances of the account be updated to correct or adjusted balances. 3. ___________Adjusting entries are not necessary in determining the profit or loss of the business entity. 4. ___________AJE provides the proper recognition of revenues and expense that will reflect the economic impact of all business transactions. 5. ___________AJE permits to record revenues to the period in which they are received, and expenses to the period in which they are paid. 6. ___________Accounting cycle is the subdivided economic life of the business entity that allows the preparation of the financial statements at a regular interval. 7. ___________The standard requires that the financial statements shall be prepared at least annually. 8. ___________An accounting period which is less than one year is called a “short period”. 9. ___________Common accounting periods are calendar and fiscal period. 10. ___________Calendar Period is a twelve-month accounting period that covers from January 1 and end December 31 of the year. 11. ___________Fiscal Period is a ten-month accounting period that starts other than January 1 and ends other than December 31. 12. ___________In cash basis of accounting, there is no “receivables or payables” account in this method of accounting. 13. ___________Accrual accounting says that income is recorded only when cash is received; and expenses is recognized only when paid. 14. ___________Accrual Accounting requires that income is recorded or recognized when goods are delivered or services are rendered whether paid in cash by customer or not; and expenses are recognized or recorded when incurred even there is no cash payment yet (on account). 15. ___________Deferral is the recognition of “an expense already paid but not yet incurred,” or of “revenue already collected but not yet earned. 16. ___________Deferral is the recognition of “an expense already incurred but unpaid’, or “revenue earned but uncollected. 17. ___________Revenue principles say that revenue is recognized when it is probable that economic benefits will flow to the enterprise and these economic benefits can be measured unreliably. 12 | Page 18. ___________Expenses principle justifies that expenses are recorded or recognized in the statement of income when it is probable that a decrease in future economic benefit related to a decrease in an asset or an increase of liability has arisen, and that the decrease in economic benefits can be measured reliably. 19. ___________When the adjusting journal entries are failed or omitted to record at the end of the accounting period, the account balances of some accounts may still be adjusted or corrected, and therefore, will provide a fair presentation of the financial statements. 20. ___________The omissions of adjusting entries will results to understatement or overstatement of some account balances. 21. ___________The expiration of the prepaid rent will result to increase in expenses and decrease in asset. 22. ___________The office supplies that have been used by the business were not recorded by the accountant & this will understate the net profit. 23. ___________Failure to record the depreciation of the depreciable assets will overstate the net profit. 24. ___________The omission to record the earned portion of the unearned account will understate the net income. 25. ___________The accountant overlooked to record the unpaid salaries at the end of the period will overstate the expenses. 26. ___________The bookkeeper did not accrue the utility incurred during the period. This will result to overstatement of the liabilities. 27. ___________The accounting clerk failed to recognize the revenue earned for the period. This will overstate the asset of the business. 28. ___________Failure to record the doubtful accounts at the end of the month will overstate the asset. 29. ___________The useful life of a depreciable asset is an estimate and not an exact measurement. Also, it is normally expressed in number of years. 30. ___________Salvage value is the amount that the asset can probably be sold for at the end of its estimated useful life. 31. ___________The allocated cost of an asset to any one accounting period is called depreciation expense. 32. ___________Journal is a multi-column working paper used by accountant bridging the unadjusted trial balance towards the preparation of the financial statements and post-closing trial balance. 33. ___________The financial statements are the means by which the information is accumulated and processed in financial accounting. 34. ___________Statement of Financial Position is a statement showing the results of operation, its income earned and expenses incurred from which net profit or loss is determined. 35. ___________Statement of Changes in Equity is a statement that shows the changes that occur in the equity or capital of the business. 36. ___________Statement of Income Flows is the statement that will show the sources and uses of cash during the period it is reported. 37. ___________ Notes to Financial Statements contains relevant notes or disclosure for the users of the financial statements that supports the contents in the face of financial statements. Page | 13  LAST NAME DATE SCORE FIRST NAME SCHEDULE ITEMS ID. NO. PROFESSOR %AGE SEATWORK 2. FILL IN THE BLANKS AND IDENTIFICATIONS 1. _______________________________________________It is the statement that will show the sources and uses of cash during the period it is reported. 2. _______________________________________________It contains relevant notes or disclosure for the users of the financial statements. 3. _______________________________________________Is the statement that provides the real condition of the business as to assets, liabilities and equity as of the certain period. 4. _______________________________________________Is a statement showing the results of operation, its income earned and expenses incurred from which net profit or loss is determined. 5. _______________________________________________Are the means by which the information accumulated and processed in financial accounting is periodically communicated to the users. 6. _______________________________________________Is the estimated number of period that an entity can make use of the asset. 7. _______________________________________________It is the amount an entity paid to acquire the depreciable asset. 8. _______________________________________________The allocated cost of an asset to any one accounting period. 9. _______________________________________________This principle justifies that expenses are recorded or recognized in the statement of income when it is probable that a decrease in future economic benefit related to a decrease in an asset or an increase of liability has arisen, and that the decrease in economic benefits can be measured reliably. 10. _______________________________________________The principle tells that revenue is recognized when it is probable that economic benefits will flow to the enterprise and these economic benefits can be measured reliably. 11. _______________________________________________Is the recognition of “an expense already incurred but unpaid’, or “revenue earned but uncollected. 12. _______________________________________________Is the recognition of “an expense already paid but not yet incurred,” or of “revenue already collected but not yet earned”. 13. ______________________________________________In this method, income is recorded only when cash is received; and expense is recognized only when paid. 14. ______________________________________________Is a twelve-month accounting period that covers from January 1 and end December 31 of the year. 15. ______________________________________________Is the subdivided economic life of the business entity that allows the preparation of the financial statements at a regular interval. 14 | Page 16. ______________________________________________Is a twelve-month accounting period that starts other than January 1 and ends other than December 31. 17. _____________________________________________Are entries generally prepared at the end of the accounting period to keep the balances of the account be updated to correct or adjusted balances. Page | 15  LAST NAME DATE SCORE FIRST NAME SCHEDULE ITEMS ID. NO. PROFESSOR %AGE SEATWORK 3. In the following transactions, determine the effect to the elements of financial accounting whether overstated, understated or no effect if the accountant failed to prepare the necessary adjusting journal entries. Transactions Effect of Omission of the AJE ASSET LIABILITIES EQUITY INCOME EXPENSE NET PROFIT 1. Failure to record the uncollectible portion of the accounts receivables. 2. Omitted to record the revenue earned for the period. 3. Failed to record the unpaid water bill for the month. 4. The accountant did not record the interest due on the notes payable. 5. The bookkeeper forgot to record the unpaid salary of the employees for the month. 6. Failed to recognize the earned portion of the unearned revenue account. 7. Omission of recording the depreciation of the equipment for the year. 8. Failure to record the used portion of the office supplies at the end of the period. 9. The accountant overlooked to record the expired portion of the prepaid insurance. 10. The clerk omitted to record the depreciation of the furniture and fixtures. 11. Failed to record the expired portion of the prepaid advertising. 16 | Page LAST NAME DATE SCORE FIRST NAME SCHEDULE ITEMS ID. NO. PROFESSOR %AGE SEATWORK 4 DATA AJE AND COMPUTATIONS HERE! You are required to prepare the adjusting entry for each of the following transactions for the year ending December 31, 2015: 1) The entity paid P48, 000 for 6 months fire insurance policy to commence on August 1 of the year. Prepaid Insurance account was debited. 2) On May 1, the business borrowed P50, 000 by issuing a one year note with 5% annual interest to Banco De Oro, Olongapo City Branch. 3) The customer paid in advance to the entity P20, 000 cash for a contract to provide services in the future. The contract includes 5 month commitment to start on October 1. 4) Entity paid P80, 000 cash to purchase a service van on June 30. The vehicle has an estimated life of 10 years with no salvage value. The entity usually used straight-line method of depreciating assets. 5) Purchased P10, 500 of supplies on account. At year’s end, the inventory count was P5 500 of supplies remained on hand. 6) Paid P100, 000 cash in advance on April 30 for a two year lease on office space. The lease took effect on May 1, 2015. Page | 17 SEATWORK 5 DATA AJE AND COMPUTATIONS HERE! Below are the information collected to Kim Louis Electrical on December 31, 2015. It entity uses the calendar year as its annual accounting period. The entity uses deferrals involving real accounts. 1) Unpaid payroll for the year ending December 31 amounting to P 130 000. 2) The business enterprise acquired computer equipment on June 30 of the year costing P 110,000 and had P 10, 000 salvage value. Its useful life is estimated to be five year. The entity uses straight line method. 3) On September 1, 2015, the enterprise made into agreement to work on a new developed housing subdivision project. The contract is for the installation of electrical works for 20 new houses. The entity received P200, 000 in advance on Sept. 1, 2015. At the end of the current year, only on 12 houses were installed of the electrical wires. 4) On November 1, 2015, the business entity purchased a six month insurance policy for P60, 000 to take effect on the same transaction date. 5) At the year end, the accountant realized that a total of P 150 000 were unbilled for the services rendered. 6) The unpaid water and electric bill for the year ended was P 35 000. 7) Unpaid salaries were P 25 000. 18 | Page SEATWORK 6 DATA AJE AND COMPUTATIONS HERE! Aris Busayong Enterprise showed below the information that requires adjustments for its fiscal accounting period ending October 31, 2015 financial statements: 1) The enterprise paid the 10 months insurance premiums on September 1, 2015 to commence on November 1, 2015, amounting to P100 000. 2) The total purchases of the office supplies were P 15 000. However, actual inventory count of the office supplies on October 31, 2015 was P 2 500. 3) The business received P70, 000 on August 1, 2015 from a costumer for services to be rendered during the months of September to March 2016. 4) Purchased office equipment in the amount of P510 000 on March 31, 2015. The equipment has an expected life of five years with a residual value of P10 000 at the end of its life. 5) Assume that October 31, 2015 is a Friday and that Aris Busayong normally pays its employees a total of P150 000 every Saturday. 6) The entity has received the repair bill from AA Repair Shop and is to be paid the next accounting period, P 23 000. 7) The telephone bill was received by the entity on October 30, 2015, P 2 500. Page | 19 SEATWORK 7 DATA AJE AND COMPUTATIONS HERE! Presented hereunder is the data of Omega Enterprise owned by Mr. Third Dela Fourth. Its fiscal period ends every November 30, 2015. You are requested to prepare the adjusting entries to determine the corrected balances of the accounts: 1) Mr. Fourth entered into a contract of lease with Ms. Fairy Tale on October 1, 2015 for office rental for the next 12 months for P240, 000. 2) On December 1, 2014, the Office Supplies account had a debit balance of P14, 000. Office Supplies in the amount of P65, 000 were acquired during the accounting year. A physical count of office supplies on November 20, 2015 totaled P29, 000. 3) Omega Enterprise sells periodicals on a subscription basis for P10 per copy. During the year, P50, 000 two-year subscriptions were sold. As at December 1, 2014, the Unearned Periodicals Revenues account had a balance of P160, 000. At year-end, it is determined that the liability to provide the periodicals amounted to P70, 000. 4) On October 1, 2015, Omega Enterprise bought a brand new set of computer for P180, 000. It is determined that the computer will last for 6 years with no salvage value. 5) Mr. Dela Fourth loan application from MetroBank was granted on July 1, 2015 amounting to P90 000 with an interest rate of 5% for 10 months note. 20 | Page SEATWORK 8 DATA AJE AND COMPUTATIONS HERE! Robin Hood Abon is engaged in transportation services business. His business services travels within the province of Zambales, Bataan and Pampanga. At the end of accounting year, December 31, 2015, the following information were gathered for adjusting entry purposes: 1) On June 1, 2015, a twelve-month insurance coverage on business vehicles was paid and debited to prepaid insurance. Premiums amounted to P120, 000 to take effect on August 1, 2015. 2) During 2015, an office supplies amounting to P16, 000 were bought in cash and debited to Office Supplies. At the end of 2015, the inventory count of supplies on hand was P3, 000. 3) Mr. Abon completed on December 30, 2015 a service to customer at a billing charge of P18, 000; the amount is not yet recorded that will be paid on February 2016. 4) On December 31, 2015, an assessment for real property tax amounted to P11, 000 on land owned during 2015 was received from the city. The taxes, which are unpaid and unrecorded, are already due but the company intends to pay them on January 20, 2016. 5) On December 31, 2015, the business finished service contract with the regular customer. The bill was for P50, 000 payable within 60 days. No cash has been collected, and no journal entry has been made for this transaction. 6) On August 1, 2015, the enterprise purchased a new vehicle at a cash price of P310, 000. The estimated useful life of the van was 10 years, with an estimated residual value of P10, 000. The entity used the straight line method of depreciation. Page | 21 SEATWORK 9 – PREPARATION OF ADJUSTING JOURNAL ENTRIES, AND FINANCIAL STATEMENT DATA AJE AND COMPUTATIONS HERE! Ysabel Melgar is Attorney-At-Law practicing her profession by offering legal services to various clients in the SBMA Area. Presented below is the ___________________________________ unadjusted trial balance as of December 31, 2015: __________________________________________ YSABEL MELGAR, Atty-At-Law ______________________________________________________ Unadjusted Trial Balance As of December 31, 2015 Account Account Title Debit Credit Code 101 Cash 90 000 102 Office Supplies 12 000 103 Prepaid Insurance 16 000 104 Office Equipment 200 000 105 Computer Equipment 80 000 201 Notes Payable 30 000 202 Accounts Payable 15 000 301 Melgar, Capital 133 000 302 Melgar, Drawing 25 000 401 Legal Fee Income 510 000 501 Rent Expense 40 000 502 Salaries Expense 160 000 503 Communication Expenses 20 000 504 Utilities Expenses 45 000 505 Total 688 000 688 000 Following are the additional information for adjustments: 1) Office supplies on hand at year-end amounted to 4 000. 2) The office equipment was purchased on June 30, 2015 with estimated life of 10 years with no salvage value. 3) Computer equipment which was purchased on January 1, 2015 has an estimated life of 5 years with no residual value. 4) A premium of 16 000 for one year insurance was paid on October 1, 2015. 5) Salaries of the firm’s staff is unpaid at year end, P8 100. 6) Electric and water bill is to be paid the next year, P 3 400. 22 | Page SEATWORK 10 – PREPARATION OF ADJUSTING JOURNAL ENTRIES, AND FINANCIAL STATEMENT ( DATA AJE AND COMPUTATIONS HERE! The unadjusted trial balance of Riza Reyes Laundry Shop on June 30, 2015, end of the fiscal period. The information is given below for adjustments: ______________________________________ _____________________________________________ REYES LAUNDRY SHOP _____________________________________________________ Unadjusted Trial Balance As of June 30, 2015 Account Title Debit Credit Cash on Hand 100,000 Accounts Receivable 80 000 Allow. For Doubtful Account 5 000 Notes Receivable 25 000 Laundry Supplies 70 000 Unexpired Insurance 6 000 Laundry Equipment 120 000 Accum. Dep’n - LE 10 000 Notes Payable 70 000 Reyes, Capital 236 000 Reyes, Drawing 15 000 Laundry Income 245 000 Salaries Expenses 65 000 Light & Water Expenses 85 000 Total 566 000 566 000 Following are the additional information for adjustments: 1) Inventory of laundry supplies on hand, 15 000. 2) The accounts receivable are estimated to be 20% uncollectible. 3) The estimated life of laundry equipment is 12 years with no residual value. 4) The unexpired insurance at year end amounted to 1 500. 5) Interest accrued on notes payable is 2 500. 6) Light and water expense unpaid amounted to P 20 000. 7) The notes receivable 10-month note that carries a 10% interest rate dated April 1, 2015. Page | 23 SEATWORK 11 – PREPARATION OF ADJUSTING JOURNAL ENTRIES, AND FINANCIAL STATEMEN DATA AJE AND COMPUTATIONS The trial balance of the Adrian Cruz Repair Shop appears below as of the calendar period December 31, 2015. _________________________________ _______________________________________ CRUZ REPAIR SHOP ________________________________________________ Unadjusted Trial Balance As of December 31, 2015 Account Title Debit Credit Cash 113 212 Accounts Receivable 200 000 Allowance for Uncollectible Accounts 20 000 Notes Receivable 80 142 Shop Equipment 120 000 Accumulated Depreciation –SE 10 000 Accounts Payable 45 000 Notes Payable 50 000 Cruz, Capital 308 280 Cruz, Withdrawals 5 000 Repair Income 185 000 Salaries Expense 34 987 Rent Expenses 41 981 Supplies Expense 9 983 Taxes and Licenses Expenses 12 975 Total 618 280 618 280 Following are the additional information for adjustments: 1) Unpaid taxes at year-end amounted to P1 827. 2) Accrued salaries, P9 871. 3) Accrued interest on notes payable, P 882. 4) Unpaid light and water, P 7 777. 5) Supplies on hand, P983. 6) Estimated uncollectible account is estimated to be 15% of the accounts receivable. Note: The entity uses expense method in recording the purchases of supplies. 24 | Page Page | 25