REVIEW OF THE ACCOUNTING PROCESS by Nenita Robles and Patricia Empleo

2-1 Entity X make use of special journals, in addition to the general journal: cash receipts journal, sales journal,
cash disbursements journal and purchases journal. All purchases of merchandise on account are recorded in the
purchases journal and any down payment made is subsequently recorded in the cash disbursements journal.
Likewise, it maintains the sales journal to record all sales and down payment collected is recorded in the cash
receipts journal. In what journal will each of the following numbered transactions be recorded? (Write the
letter(s) only.) A. Sales journal, B. Purchases journal, C. Cash receipt journal, D. Cash disbursement journal and E.
General journal.

1. Issue of share capital for cash.

2. Purchase of treasury share.
3. Periodic lease payment applying both principal and interest in finance lease.
4. Sale of merchandise on account.
5. Issue of promissory note for machine purchased.
6. Receipt of a promissory note in settlement of an account.
7. Purchase of merchandise on account.
8. Declaration of dividends.
9. Consumption of supplies, purchase of which was recorded in the Supplies account.
10. Receipt of property dividends.
11. Write down of inventory to lower of cost and net realizable value.
12. Transferring the resulting balance of income summary to retained earnings account.
13. Sale of used equipment for cash.
14. Recognition of deferred tax assets and deferred tax liability.
15. Correction of a prior period error due to understatement of depreciation in a prior period.

2-2 Determine the amount required in each of the following independent problems.
a. If the debit and credit totals of a trial balance were P1,200,000 and an additional entry was recorded and
posted for the purchase of P60,000 of office supplies for cash, what would be the new debit and credit totals
for the trial balance after this entry is made?
b. On March 31, the ledger of Rabbit Cleaning Company consists of the following:
Cleaning equipment 278,000.00 Accounts receivables 210,000.00
Accounts payable 157,000.00 Accumulated depreciation 20,000.00
R. Abbit, Capital 200,000.00 Cash 69,000.00
Interest Payable 5,000.00 Notes Payable 220,000.00
Office Equipment 115,000.00 Salaries Payable 96,000.00
Cleaning supplies 26,000.00
What is the total of the credit column in a trial balance prepared on March 31?
c. Accounts appearing in the trial balance of Ox Company at June 30 are listed below:
Cash 290,000 Accum. Depreciation 810,000
Equipment 1,620,000 Accounts receivable 310,000
B. Ox, capital 1,100,000 Advertising expense 15,000
B. Ox, drawing 210,000 Service revenue 480,000
Other expenses 190,000 Accounts payable 245,000
No adjusting entry has yet been made to record depreciation expense of P27,000 for the month of June.
What is the total of credit column in a post-closing trial balance prepared on June 30?
d. Only three adjustments appear in the adjustments column of a worksheet for Rat Company: (1) to record
P15,000 depreciation of office equipment; (2) to record the use of P12,000 office supplies; and (3) to record
accrued interest on notes payable of P2,800. If the trial balance column totals are P729,000, what are the
totals of the adjusted trial balance columns?
e. The trial balance of Horse Company shown below does not balance.
Horse Company
Trial Balance
April 30, 2017

Debit Credit
Cash 48,000
Accounts receivable 25,700
Prepaid insurance 7,000
Equipment 80,000

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REVIEW OF THE ACCOUNTING PROCESS by Nenita Robles and Patricia Empleo
Accounts payable 45,000
Property tax payable 5,600
Hoe Rose, capital 112,000
Service revenue 69,600
Salaries expense 42,000
Advertising expense 11,000
Property tax expense 8,000
208,900 245,000
Your review of the ledger reveals the following:
a. Each account in the general ledger had a normal balance.
b. The debit footings in Prepaid insurance, accounts payable and property tax expense were each
understated by P1,000.
c. A transposition error was made in Accounts Receivable and Service Revenue; the correct balances
for the Accounts Receivable and Service Revenue are P27,500 and P66,900, respectively.
d. A debit posting to Advertising Expense of P3,000 was omitted.
e. A P15,000 cash drawing by the owner was debited to Hoe Rose, capital and credited to Cash.
What is the correct total of the trial balance at April 30, 2017?

2-3 The following data were gathered in analyzing the accounts of Tiger Company at December 31, 2017, the end
of its first period of operations.
a. Supplies of P25,000 were purchased during the year and were debited to Supplies account. On December
31, supplies of P8,500 are on hand.
b. The Prepaid Insurance account shows a balance of P24,000 representing the cost of two-year insurance
policy dated May 1, 2017.
c. On November 1, 2017, the company leased a portion of its space and received P27,000, representing three-
months’ rent beginning on that date. The lease is an operating lease and the amount received was credited
to Rent Revenue.
d. The company purchased office equipment on March 1, 2017 costing P400,000. The assets have an
estimated useful life of 5 years and salvage value of P40,000. The company uses the sum-of-the years’ digits
method and depreciated to the nearest month.
e. It is estimated that 2% of the accounts receivable at the end of the year is uncollectible. Accounts receivable
balance at December 31, 2017 is P450,000. The Allowance for Uncollectible Accounts shows a credit balance
before adjustment of P3,000.
f. On December 1, the company issued a 90-day, 12% note for P200,000. The interest on the note is payable
on maturity. (use 360-day year)
g. Merchandise inventory at December 31, 2017 amounted to P480,000. At the end of the year, selected
account balances were as follows: Purchases-P900,000; Freight-in-P20,000; Purchase Returns and
Allowances – P25,000.
Required:
1. Adjusting entries at December 31, 2017.
2. Appropriate reversing entries at January 1, 2018 if the entity prepares reversing entries.

2-4 The following information is available for the year 2017 concerning the Dragon Company, which adjusts and
closes its accounts every December 31.
a. The company pays all employees every Friday. The total payroll for five-day workweek ending January 3,
2018 is P80,000.
b. Equipment with a cost of P440,000, 12-year life, and a P20,000 residual value is to be depreciated. The
straight-line method is used.
c. The company holds a P60,000, 12%, 6-month note receivable dated October 1, 2017 from a customer. The
interest is collectible on maturity date.
d. A count of supplies indicates that the Store Supplies and Office Supplies accounts should be reduced by
P12,800 and P15,600, respectively, for supplies used during the period.
e. An overall assessment of accounts receivable indicates a need for an allowance for uncollectible accounts
at 5% of the Accounts Receivable balance at December 31, at which date the reported balance is P650,000.
The allowance for Uncollectible Accounts shows a debit balance before adjustments of P15,000.
f. An analysis of the company’s insurance policies indicates that the Prepaid Insurance account is to be
reduced for the P5,280 expired insurance.

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REVIEW OF THE ACCOUNTING PROCESS by Nenita Robles and Patricia Empleo
g. A review of travel expense reports indicates that P8,100 advanced to sales personnel (and recorded as
travel expense) had not been used by these personnel.
h. On September 1, 2017, Rent Expense was debited for P180,000 representing rental for a six-month period
beginning on that date.
i. Dragon Company discounted its own one-year, P120,000, non-interest bearing note on May 1, 2017 with
Landbank at a discount rate of 12%. The transaction was recorded as follows:
Cash 105,600
Discount on Notes Payable 14,400
Notes payable 120,0000
j. The income tax rate is 30% of current income and will be paid in the first quarter of 2018. The pretax profit
of the company before adjustments is P1,352,000.
Required: Adjusting entries at December 31, 2017

2-8 For each situation, reconstruct the adjusting entry that was made to arrive at the given ending balance. Assume
that statements and adjusting entries are prepared only once a year.
a. Prepaid insurance, January 1- P84,000; Prepaid insurance, December 31- P96,000. During the year, an
additional business insurance policy was purchased. A 2-year premium of P37,500 was paid and charged to
Prepaid Insurance.
b. Accumulated depreciation, January 1- P127,800; Accumulated depreciation, December 31- P133,050.
During the year, a depreciable asset that cost P11,250 and had a carrying amount of P2,400 was sold for
P3,600. The disposal of the asset was correctly recorded.
c. Unearned rent, January 1- P55,000; Unearned rent, December 31- P75,000. Quarterly rent received in
advance for the sublet of a portion of the entity’s space is P90,000. During the year, equipment was rented
to another company at an annual rental of P45,000. The quarterly rent payments were credited to Rent
Revenue while the annual equipment rental was credited to Unearned Rent.
d. Salaries payable, January 1- P21,430; Salaries payable- December 31- P17,380. Salaries are paid bi-weekly.
All salary payments were debited to Salaries expense.

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