FAR Adjusting Entries Excercise

Exercise 7.
ADJUSTING ENTRIES
Instruction: Assuming a calendar year accounting period, prepare adjusting on the following
independent transactions.
Lecture Exercise:
1. Accruals
a. Banco de Oro was renting a space of the building that was owned by Pioneer Metro Plaza for
P50,000 per month payable every 5th day of the following month.
b. A P60,000, 10%, 180-day note was received from a customer dated Sept. 1, 2017. The
interest was not yet collected at the end of the calendar year.
2. Deferrals
a. Prepayment of Expenses
 On Sept. 1, 2017, the business paid an insurance premium covering the period from Sept. 1,
2017 – Sept. 1, 2019 in the amount of 48,000.
 The business purchased supplies for P10,000 during the year. At the end of the year, P4,000 cost
of supplies were actually on hand.
b. Pre-collection of Income
 On August 1, 2017, P24,000 was collected from a tenant representing an advance collection from
building rental for 2 years.
 On Dec. 1, 2017, P100,000 was collected in advance for the services to be rendered in the
future. At the end of the year, only 1/4 portion of the services was actually rendered.
3. Provision for Uncollectible Accounts

a. Accounts Receivable Balance at the end of the year is P300,000.
 Estimated Uncollectible Accounts is to be provided at 3% of the outstanding balance.
 Assuming the same situation in above but instead there is a beginning balance for the Estimated
Uncollectible Accounts of P500.
b. Aging of Accounts Receivable revealed the ff.:

Uncollectible Rate 1% 3% 5%
Customer’s Name 1-60 days 61-120 days 120 days over
R. Lopez P 25,000 P 5,000 P 1,000
W. Ballada 20,000 15,000 5,000
P. Guererro 10,000 10,000 4,000
 Assuming there is no beginning balance for the Estimated Uncollectible Accounts.

 Assuming there is beginning balance for the Estimated Uncollectible Accounts of P500.
4. Provision for Depreciation

An air-conditioning unit was acquired on Apr.1, 2017 for P270,000. Freight on shipment is 2,000
and installation cost is 8,000. It has an estimated useful life of 10 years.
a. Assuming there is no residual value.
b. Assuming there is a P40,000 residual value.
Exercise 8. Adjusting Entries to Financial Statement Presentation
The preliminary trial balance of METRO DAVAO HARDWARE & AUTO SUPPLY, a trading business
owned by John Joson is presented below:
METRO DAVAO HARDWARE & AUTO SUPPLY

Trial Balance
December 31, 2017
Account Title Debit Credit
Cash In Bank ₱ 2,602,500
Petty Cash Fund 1,500
Accounts Receivable 535,500
Est. Uncollectible Accounts ₱ 6,300
Merchandise Inventory, Jan. 1 1,575,000
Prepaid Insurance 12,600
Unused Supplies 112,500
Furniture & Fixtures 1,275,000
Accumulated Depreciation - Furn. & Fix. 127,500
Delivery Equipment 1,980,000
Accumulated Depreciation - Delivery Equip. 148,000
Accounts Payable 981,000
J. Joson, Capital 7,129,200
J. Joson, Drawing 45,000
Sales 5,977,500
Sales Returns & Allowances 8,250
Sales Discounts 9,450
Purchases 5,475,000
Purchase Returns & Allowances 6,900
Purchase Discount 4,800
Freight In 7,000
Freight Out 7,250
Salaries Expense 451,500
Rent Expense 187,000
Advertising Expense 23,700
Taxes and Licenses 15,750
Utilities Expense 56,700
Total ₱14,381,200 ₱14,381,200
The following were gathered to update the balances of some of the accounts on December 31, 2017
for year-end financial statements preparation.
a. Merchandise Inventory, December 31, 2017 determined through physical counting, ₱2,970,000.
b. Official Receipts No. 0752 dated December 31 representing collection from customers' accounts
was not recorded, ₱ 22,500 same with Cash Sales Invoice No. 05302 in the amount of ₱12,000.
Both were inadvertently omitted in the Cash Receipts Journal.
c. Check No. 09425 with covering Check Voucher No. 31 in the amount of ₱27,000 dated December
31 was not recorded and did not appear in the Cash Disbursement Journal. This represents
payment of account to a supplier.
d. Estimated Uncollectible Account should be brought-up to 2% of the outstanding receivable

account after considering the ₱22,500 adjustment for Official Receipt No. 0752.
e. Unpaid salaries at year-end amounted to P50,000.

f. The business was renting a space of the building for P17,000 per month payable every 10 th day
of the following month.
g. The Prepaid Insurance account balance represents the insurance paid in advance covering 2
years starting May 1, 2017.
h. ₱15,000 cost of supplies were actually on hand at the end of the year.
i. Furniture & Fixtures had 10 years useful life with no salvage value.
j. Delivery Equipment had 10 years useful life with P500,000 residual value.
Instruction: Do the following requirements:

1. Prepare adjusting entries in the General Journal.
2. Prepare an Adjusted Trial Balance
3. Prepare the following Financial Statements:
 Income Statement
 Statement of Financial Position (Balance Sheet)
 Statement of Changes in Owner’s Equity
 Statement of Cash Flows
4. Prepare closing entries in the General Journal.
5. Prepare Post-Closing Trial Balance

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Exercise 7.

3. Provision for Uncollectible Accounts

b. Aging of Accounts Receivable revealed the ff.:

 Assuming there is no beginning balance for the Estimated Uncollectible Accounts.

4. Provision for Depreciation

METRO DAVAO HARDWARE & AUTO SUPPLY

d. Estimated Uncollectible Account should be brought-up to 2% of the outstanding receivable

e. Unpaid salaries at year-end amounted to P50,000.

Instruction: Do the following requirements:

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