CHAPTER 2

REVIEW OF THE ACCOUNTING PROCESS

Problems
2-1

(Laurence Company)
a.
Adjusting entries at December 31, 2007:
a.

b.

c.

d.

e.

f.

g.

b.

2-2

Supplies Expense
Supplies
25,000-8,500

16,500
16,500

Insurance Expense
Prepaid Insurance
24,000 x 8/24

8,000

Rent Revenue
Unearned Rent Revenue
27,000/3

9,000

8,000

Depreciation Expense
Accum. Depreciation
(360,000/10) x 10/12

9,000
30,000
30,000

Uncollectible Accounts Expense

Allowance for Uncollectible Accounts
2% x 450,000

9,000

Interest Expense
Interest Payable
200,000 x .12 x 30/360

2,000

Merchandise Inventory
Purchase Returns and Allowances
Cost of Goods Sold
Purchases
Freight-in

9,000

2,000
480,000
25,000
415,000
900,000
20,000

Reversing entries at January 1, 2008

c.
Unearned Rent Revenue
Rent Revenue

9,000

f.

2,000

Interest Payable
Interest Expense

2,000

(Matthew Company)
Adjusting entries at December 31, 2007:
a.
Salary Expense
Salaries Payable
21,000 x 2/5
b.

9,000

Depreciation Expense
Accumulated Depreciation
420,000 / 12

8,400

35,000

8,400

35,000

c.
d.

1,800
1,800
5,250

e.

Bad Debts Expense

Allowance for Bad Debts
5% x 650,000

f.

Insurance Expense
Prepaid Insurance

5,280

g.

Prepaid Travel Expense (or Prepaid

Expense)
Travel Expense

3,100

Prepaid Rent
Rent Expense
18,000 x 2/6

6,000

h.

i.

2-3

Interest Receivable
Interest Revenue
60,000 x .12 x 3/12
Supplies Expense
Store Supplies
Office Supplies

32,500

32,500

5,280

3,100
6,000

Income Tax Expense

Income Tax Payable
Reported net income
1,352,000
Adjustments: (a)
(
8,400)
(b)
( 35,000)
(c)
(d)
(
5,250)
(e)
( 32,500)
(f)
( 5,280)
(g)
(h)
Correct net income
1,276,470

446,765
446,765

1,800

3,100
6,000
x 35%

(De Asis Corporation)

a.
Adjusting entries at December 31, 2007:
a.
Doubtful Accounts Expense
Allowance for Doubtful Accounts

=446,7
65

1,700
1,700

b.

Insurance Expense
Prepaid Insurance

1,250

c.

Interest Receivable
Interest Revenue

250

d.

1,280
3,970

1,250
250

Prepaid Rent
Rent Expense

1,550

1,550

b.

e.

Depreciation Expense
Accumulated Depreciation

f.

Salary Expense
Salaries Payable

8,000

g.

Interest Expense
Interest Payable

200

h.

Rent Revenue
Unearned Rent Revenue

c.

2-4

20,000

80,000
3,850

Income Summary
Rent Expense
Salaries Expense
Interest Expense
Doubtful Accounts Expense
Depreciation Expense
Insurance Expense

83,850

864,700
7,450
828,000
1,300
1,700
25,000
1,250
250

Rent Expense
Prepaid Rent

1,550

f.

Salaries Payable
Salary Expense

8,000

g.

Interest Payable
Interest Expense

h.

200

20,000

Reversing entries at January 1, 2008

c.
Interest Revenue
Interest Receivable
d.

25,000
8,000

Closing entries (partial)

a.
Rent Revenue
Interest Revenue
Income Summary
b.

25,000

250
1,550
8,000

200
200

Unearned Rent Revenue

Rent Revenue

20,000

20,000

(JPIA Company)
Amount of
Adjustment
a.
b.
c.
d.
e.
f.

Salaries Payable
Interest Payable
Advertising Payable
Accumulated Depreciation
Office Supplies
Unearned
Plumbing
Revenue

16,800
6,750
60,000
20,000
58,000
108,000

Amount that would

appear in Balance
Sheet
16,800
6,750
60,000
30,000
28,000
36,000

g.

Prepaid Insurance

20,000

40,000

a.

Adjusting entries at December 31, 2007:

a.
Trading Securities
Unrealized Gain on Trading Securities

13,000

b.

15,200

2-5

c.
d.

f.

2-6

Operating Expenses
Prepaid Expenses
Req. bal in prepaid expenses:
144,000 x 4/12
48,000
Office supplies on hand 39,000
Store supplies on hand 23,000
Total
110,000
Reported amount
125,200
Req. decrease in PE
15,200

13,000

Operating Expenses
Accumulated Depreciation
No entry required. The required balance
in accrued interest is P22,500, computed
as 200,000 x 15% x 9/12. This amount is
already included in the Trade and Other
Payables balance.

156,000

Rent Revenue
Unearned Rent Revenue
Required balance in unearned rent
192,000 x 9/12
142,000
Reported balance
80,000
Required increase
62,000

62,000

15,200

156,000

62,000

a.

P1,200,00
0

Same as given total. The transaction will increase office

supplies and decrease cash whose balances are both
reflected in total debit amount.

b.

P2,220,00
0

Accounts Payable

c.

P698,000

Accumulated Depreciation
(810,000+27,000)
RMP, Capital (1,100,000+410,000-15,00027,000-190,000)
TOTAL
Accounts Payable
C. Manor, Capital
Interest Payable
Accumulated Depreciation
Notes Payable
Salaries Payable
TOTAL

245,000
837,000
1,138,000
2,220,000
157,000
200,000
5,000
20,000
220,000
96,000
698,000

d.

P744,000

729,000 + 15,000 = 744,000; The use of P12,000

office supplies does not affect the trial balance total.

e.

P243,500

Total debits is P243,500 consisting of:

Cash P48,000;
Accounts Receivable P27,500;
Prepaid Insurance P8,000; Equipment P80,000;
Salaries Expense P42,000; Advertising Expense
P14,000; Property Tax Expense P9,000; and Way
Land, Drawing P15,000.
Total credits is P243,500 consisting of:
Accounts Payable P44,000; Property Tax Payable
P5,600; Service Revenue P66,900; and Way Land,
Capital P127,000.

MULTIPLE CHOICE QUESTIONS

Theory
MC1
MC2
MC3
MC4
MC5
MC6
MC7
MC8
MC9
MC10

C
D
D
A
B
C
C
B
D
C

Problems
MC21
B
MC22
B
MC23
A
MC24
D
MC25
C
MC26
A
MC27
C
MC28
D
MC29
C
MC30
A
MC31
C
MC32
A
MC33
A
MC34
C

MC11
MC12
MC13
MC14
MC15
MC16
MC17
MC18
MC19
MC20

C
B
D
A
B
B
C
D
B
A

16,000 + 29,000 21,000 = 24,000

122,500 + 437,500 105,000 = 455,000
990,000 + 50,000 60,000 = 980,000
400,000 + (15% x 3.0M) = 850,000
36,000 x 34/36 = 34,000; 44,100 33,100 = 11,000
60,000 17,000 = 43,000
12,350 + 1,850 5,300 = 8,900
(14,400 x 5/12) + 9,600 + (11,200 x 12/16) = 24,000
24,900 + 4,500 3,600 = 25,800
P0. The post-closing trial balance includes real accounts only.
36,000 x 4/12 = 12,000
30,000 + 45,000 + 20,000 = 95,000

MC35
MC36

B
A

MC37

MC38
MC39

A
B

MC40

144,000 95,000 = 49,000

1,337,100 + 274,000 120,000 + 67,000 = 1,558,100
or 1,684,000 274,000 + 120,000 + 80,100 52,000 = 1,558,100
(7,200 X 21/24) + (3,600 X 2/6) + (24,000 X 27/36) = 25,500
28,200 = 2,700 Decrease
45,000 x 10% x 30/360 = 375
(27,000 x 3/12) + (22,200 x 6/12) + (28,800 x 9/12) + (10,700 x
12/12) = 60,150 56,250 = 3,900 Increase
11,250 x 2/4 = 4,500