DEFFERAL (Prepayments)
A. Prepaid Expenses [Asset method]
(1) Supplies
Neats Print shop purchased advertising supplies
costing P25,000 on October 5. Neats Print shop
debited the asset Supplies. This account shows a
balance of P25,000 in the October 31 Trial
Balance. An inventory count at the close of
business on October 31 reveals that P10,000 of
supplies are still on hand.
Questions:
a. What was the initial entry of Neats Print
shop on October 5 related to purchase of
supplies?
b. How much supplies were used during
October?
c. What should be the adjusting entry of
Neats Print shop by October 31 to reflect
the consumption of supplies?
d. Without any adjustment, what would the
on the following items in the financial
statement:
(d.1) October Expenses
(d.2) October Profit
(d.3) October 31 assets
(d.4) October 31 owners equity
(2) Insurance
On July 4, Maiden Piggery paid P24,000 for a one-
year fire insurance company, beginning
immediately. Maiden debited the cost of the
premium to a real account at that time. This
account still shows a balance of P24,000 in the
July 31 trial balance
Questions:
a. What was the initial entry of maiden
Piggery on July 4 for the payment of
premium to the policy provider?
b. How much premium expired during July?
c. What should be the adjusting entry of
Maiden Piggery by July 31 to reflect the
use of the premium?
d. Without any adjustment, what would the
on the following items in the financial
statement:
(d.1) July Expenses
(d.2) July Profit
(d.3) July 31 assets
(d.4) July 31 owners equity
Alternative method of recording deferrals
A. Prepaid Expenses [Expense method]
(1) Supplies
Neats Print shop purchased advertising supplies
costing P25,000 on October 5. Neats Print shop
debited the account Supplies expense. This
account shows a balance of P25,000 in the
October 31 Trial Balance. An inventory count at
the close of business on October 31 reveals that
P10,000 of supplies are still on hand.
Questions:
a. What was the initial entry of Neats Print
shop on October 5 related to purchase of
supplies?
b. How much supplies were used during
October?
c. What should be the adjusting entry of
Neats Print shop by October 31 to reflect
the actual consumption of supplies?
d. Without any adjustment, what would the
on the following items in the financial
statement:
(d.1) October Expenses
(d.2) October Profit
(d.3) October 31 assets
(d.4) October 31 owners equity
(2) Insurance
On July 4, Maiden Piggery paid P24,000 for a one-
year fire insurance company, beginning
immediately. Maiden debited the cost of the
premium to a nominal account at that time. This
account still shows a balance of P24,000 in the
July 31 trial balance
Questions:
a. What was the initial entry of maiden
Piggery on July 4 for the payment of
premium to the policy provider?
b. How much premium expired during July?
c. What should be the adjusting entry of
Maiden Piggery by July 31 to reflect the
actual use of the premium?
d. Without any adjustment, what would the
on the following items in the financial
statement:
(d.1) July Expenses
(d.2) July Profit
(d.3) July 31 assets
(d.4) July 31 owners equity
 (3.) Rent
On March 1, 2015, Quijonez Fashion Boutique
paid P120,000 for a 24-month rent in advance for
the use of a stall in a flea market. Quijonez
recorded the amount paid in a permanent
account. On December 31, 2015 trial balance, the
permanent account still shows P120,000 balance
related to the rent paid last March 1.
Questions:
a. What was the initial entry of Quijonez
Fashion Boutique Concepts on March 1
related to the advance payment made to
stall owners?
b. How much rent payments were
consumed during the year?
c. What should be the adjusting entry of
Quijonez Fashion Boutique by December
31 to reflect the rent payments
consumed?
d. Without any adjustment, what would the
on the following items in the financial
statement:
(d.1) 2015 Expenses
(d.2) 2015 Profit
(d.3) December 31 assets
(d.4) December 31 owners equity
B. Unearned Income [Liability Method]
(1) Case 1
On April 1, Nova Solutions, a consulting business,
received P500,000 advance payments from its
clients for services to be performed in the future.
Nova Solutions recorded the same in the liability
account unearned fees. By the end of April,
Nova Solution fulfilled 40% of the required work
based on the contract with its clients. On April 30
Trial Balance, the liability account unearned fees
still show P500,000 balance. Based on the Nova
Solution chart of Accounts, the business uses
Fees Earned to record revenues.
Questions:
a. What was the initial entry of Nova
Solutions on April 1 upon receipt of
advance payments from its clients?
b. How much fees were earned during
April?
c. What should be the adjusting entry of
Nova Solutions by April 31 reflect the
fees already earned?
(3.) Rent
On March 1, 2015, Quijonez Fashion Boutique
paid P120,000 for a 24-month rent in advance for
the use of a stall in a flea market. Quijonez
recorded the amount paid in a Temporary
account. On December 31, 2015 trial balance, the
permanent account still shows P120,000 balance
related to the rent paid last March 1.
Questions:
a. What was the initial entry of Quijonez
Fashion Boutique Concepts on March 1
related to the advance payment made to
stall owners?
b. How much rent payments were
consumed during the year?
c. What should be the adjusting entry of
Quijonez Fashion Boutique by December
31 to reflect the actual rent payments
consumed?
d. Without any adjustment, what would the
on the following items in the financial
statement:
(d.1) 2015 Expenses
(d.2) 2015 Profit
(d.3) December 31 assets
(d.4) December 31 owners equity
B. Unearned Income [Revenue Method]
(1) Case 1
On April 1, Nova Solutions, a consulting business,
received P500,000 advance payments from its
clients for services to be performed in the future.
Nova Solutions recorded the same in the revenue
account fees earned. By the end of April, Nova
Solution fulfilled 40% of the required work based
on the contract with its clients. On April 30 Trial
Balance, the revenue account fees earned still
show P500,000 balance. Based on the Nova
Solution chart of Accounts, the business uses
Unearned Fees to record advance payment.
Questions:
a. What was the initial entry of Nova
Solutions on April 1 upon receipt of
advance payments from its clients?
b. How much fees were earned during
April?
c. What should be the adjusting entry of
Nova Solutions by April 31 reflect the
actual fees already earned?
ACCRUALS
A. Accrued Expenses
(1) Utilities
By the end of January, Lucas Publishing House
received a bill from Meralco amounting to P9550.
According to the bill, the amount is based on the
entitys consumptions of power during January
and shall be due 10 days after January 31. Lucas
Publishing House has not yet recorded any
expense related to its power consumption prior
to the receipt of the bill.
Questions:
a. What was the initial entry of Lucas
Publishing House in January relate to its
consumption of power from Meralco?
b. How much utilities expense was incurred
during January?
c. What should be the adjusting entry of
Lucas Publishing House by January 31 to
reflect the expenses already incurred?
d. What would be the journal entry of Lucas
Publishing House upon payment of
utilities on February 10?
e. Without any adjustment, what would the
on the following items in the financial
statement:
(e.1) January Expenses
(e.2) January Profit
(e.3) January 31 liabilities
(e.4) January 31 owners equity
(2) Interest Expense ( case1)
On May 30, 2015, Belo Car Dealer borrowed P1
million pesos from the BDO Unibank for the use
in business expansion. The loan is due in 3 years
on May 30, 2018 and requires annual payment of
interest at an annual rate of 12% every May 30
starting May 30, 2016. Belo Car Dealer follows
calendar year reporting.
Questions:
a. What was the initial entry of Belo Car
Dealer on May 30, 2015 related to the
interest?
b. How much interest expense was incurred
during 2015?
c. What should be the adjusting entry of
Belo Car Dealer on December 31, 2015 to
reflect the interest expense already
incurred?
d. What would be the journal entry of Belo
Car Dealer upon payment of interest on
May 30, 2016?
e. Without any adjustment, what would the
on the following items in the financial
statement:
(e.1) 2015 Expenses
(e.2) 2015 Profit
(e.3) December 31 liabilities
(e.4) December 31 owners equity
(3) Interest expense (case 2)
On December 1 2015, Tolomia Consulting signed
a 3-month note payable in the amount of
P500,000 from EastWest Bank for use in business
expansion. The note requires at an annual rate of
12. Both principal and interest is payable at
maturity.
Questions:
a. How much interest expense was incurred
by Tolomia Consulting during 2015?
b. What should be the adjusting entry of
Tolomia Consulting on December 31,
2015 to reflect the interest expense
already incurred?
c. What would be the journal entry of
Tolomia Consulting upon payment of the
note payable on February 28, 2016?
d. Assuming the rate of is stated monthly
instead of annually, what would be the
answer in letters:
(a)
(b)
(4) Salaries and wages (case1)
Senyora Farm has 3 workers with daily rate of
P1,000. Senyora Farm has a 5-day workweek and
pays its workers every Tuesday of the week. In
August 2015, the last Tuesday pay day fell on 25th
and Senyora Farm prepared its financial
statements on August 31 which is a Monday.
Questions:
a. How much wages expense should be
accrued by Senyora Farm on August 31,
2015 assuming the workers worked on
schedule until August 31?
 b. What should be the adjusting entry of
Senyora Farm by August 31 to reflect the
expenses already incurred?
c. What would be the journal entry of
Senyora Farm upon payment of wages on
September 1?
d. Without any adjustment, what would the
on the following items in the financial
statement:
(d.1) August Expenses
(d.2) August Profit
(d.3) August 31 liabilities
(d.4) August 31 owners equity
(5) Salaries and wages ( case 2)
RNB Laundry Solutions pays its staff on a bi-
weekly basis on a 5-day workweek. Recurring bi-
weekly salaries of the staff amount to P6500.
RNB Laundry Solutions prepared its financial
statements on July 31, 2015. Remaining
workdays in July since the last pay day are July
29, 30, and 31.
Questions:
a. How much salaries expense should be
accrued by RNB Laundry Solution on July
31?
b. What should be the adjusting entry of
RNB Laundry Solutions on July 31 to
reflect the expenses already incurred?
B. ACCRUED INCOME
(1) Accrued Revenue
On October 1, 2015, N. Reyes Accounting Office
started rendering bookkeeping services to a
client for a monthly retainer fee of P25,000. By
the end of 2015, N. Reyes has not yet billed the
client for any retainer fee for the past 3 months
of the services already rendered.
Questions:
a. What was the initial entry of N. Reyes
Accounting Office on October 1 related
to its retainer contract with its client?
b. How much accounts receivable should be
accrued by N. Reyes Accounting Office on
December 31, 2015?
c. What should be the adjusting entry of N.
Reyes Accounting Office on October 31 to
reflect the revenues already earned?
d. Without any adjustment, what would the
on the following items in the financial
statement:
(d.1) 2015Fees Earned
(d.2) 2015 Profit
(d.3) December 31 assets
(d.4) December 31 owners equity
(2) Interest Receivable
On March 31, 2015, Ace Appliances received a
P200,000 note from a customer from a sale of an
air conditioning unit. The note will be paid in two
annual installment of P100,000 starting March
31, 2016. The note carries 12% interest payable
annually based on outstanding balance of the
note at a given period.
Questions:
a. What was the journal entry of Aces
Appliances on March 31, 2015 related to
its sale to customer?
b. What will be the adjusting entry of Ace
Appliances on December 31, 2015 to
reflect interest already earned?
c. What will be the journal entry of Ace
Appliances upon receipt of the first
installment and interest payment from
the customer on March 31, 2016?
d. What will be the journal entry of Ace
appliances on December 31, 2016 to
reflect interest already earned?
e. What will be the journal entry of Ace
Appliances upon final settlement of the
customer on March 31, 2017?
f. How much is the total interest income of
Ace Appliances in 2015?
g. How much is the total interest income of
Ace Appliances in 2015?
h. How much is the total interest income of
Ace Appliances in 2015?