CHAPTER 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 Depreciation Expense Accum Depreciation (360,000/10) x 10/12 30,000 8,000 9,000 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 c Interest Receivable Interest Revenue d 5,280 3,100 446,765 446,765 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 Insurance Expense Prepaid Insurance 32,500 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 b 32,500 1,280 3,970 =446,7 65 1,700 1,700 1,250 1,250 250 250 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 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 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 B MC38 MC39 A B MC40 B 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 ... Problems MC21 B MC 22 B MC23 A MC24 D MC25 C MC26 A MC27 C MC28 D MC29 C MC30 A MC31 C MC 32 A MC33 A MC34 C MC11 MC 12 MC13 MC14 MC15 MC16 MC17 MC18 MC19 MC20 C B D A B B C D B A 16,000 + 29 ,000 – 21 ,000... 1,337,100 + 27 4,000 – 120 ,000 + 67,000 = 1,558,100 or 1,684,000 – 27 4,000 + 120 ,000 + 80,100 – 52, 000 = 1,558,100 (7 ,20 0 X 21 /24 ) + (3,600 X 2/ 6) + (24 ,000 X 27 /36) = 25 ,500 – 28 ,20 0 = 2, 700 Decrease... Decrease 45,000 x 10% x 30/360 = 375 (27 ,000 x 3/ 12) + (22 ,20 0 x 6/ 12) + (28 ,800 x 9/ 12) + (10,700 x 12/ 12) = 60,150 – 56 ,25 0 = 3,900 Increase 11 ,25 0 x 2/ 4 = 4,500