NAGA COLLEGE FOUNDATION, INC.
M.T. Villanueva Avenue, Naga City
College of Accountancy and Finance
Financial Accounting and Reporting
Study Guide
Adjusting Journal Entries
5.6 Adjusting Journal Entries
Selected account balances before adjustments for Thomas Auto Repair Service at December 31
of the current year are as follows:
Accounts receivable P31,250 Unearned Income P 10,500
Supplies 2,300 Service Income 169,700
Equipment 80,000 Salary expense 42,500
Accumulated Depreciation 0 Rent expense 18,000
Additional information at December 31 is as follows:
1. The supplies on hand at December 31 were 25% of the amount recorded.
2. Repair services rendered but still unbilled at December 31 was P2,350.
3. Equipment acquired and used on July 1 is depreciated over 5 years.
4. December 16 to 31 salary amounting to P4,750 was not yet paid.
5. Unearned income at December 31 amounted to P7,500.
5.7 Adjusting Journal Entries
At the end of the accounting period ending December 31 of the current year, the following selected
data were taken from the financial statements of Kristian Perez, a well-known architect.
Profit for the year P152,450 Total Liabilities P120,500
Total Assets 489,800 Total Owner’s Equity 369,300
In preparing the financial statements, the following information was omitted in making the
adjustments:
a. Depreciation of equipment that cost P120,000 bought on April 1 of the current year. It is
estimated to be useful for 10 years without salvage.
b. Unbilled architect fees earned at December 31 was P6,000.
c. Prepaid insurance for January to June the following year, P1,200.
d. Unpaid salaries at the end of the year, P3,600.
e. Unused supplies at the end of the year not taken up, P1,050.
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5.8 Adjusting Journal Entries
Below is a set of related information from the accounts of Nikko Services as of December 31,
2021, the close of its accounting period.
a. The machinery account has a balance of P 75,000. Part of this amount consists of machinery
acquired on October 1, 2021 at a cost of P 26,000. Machinery has been depreciated at a rate of
8% per year.
b. Rent of P 6,600 for one year in advance was paid on October 31, 2021, the debit at that time
being made to the expense account.
c. The balance in the supplies account on December 31, 2021 was P 7,200 the same balance as
at December 31, 2020 after adjustment. Additional supplies costing P 3,500 were purchased
during 2021 and charge to supplies expense. An inventory of supplies taken on December 31,
2021, showed the amount on hand to be P 4,500.
d. The allowance for doubtful accounts has a credit balance of P 300. It is estimated that 3% of
the P 19,700 of accounts receivable outstanding on December 31, 2021 will be uncollectible.
e. A five-year insurance premium of P 10,000 was paid on May 31, 2020 for coverage effective
on that date. The entire amount was debited to the unexpired insurance account.
5.9 Adjusting Journal Entries
Presented below is a the unadjusted trial balance of Villarey Travel Agency for the year ended
December 31,2021:
Villarey Travel Agency
Unadjusted Trial Balance
December 31, 2021
Cash P 126,000
Accounts Receivable 645,000
Prepaid Rent 360,000
Office Supplies 63,000
Furniture 2,175,000
Accumulated Depreciation P 435,000
Note Payable 900,000
Accounts Payable 285,000
Villarey, Capital 1,680,000
Villarey, Drawing 1,200,000
Travel Revenues 5,133,000
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Travel Expense 3,771,000
Miscellaneous Expense 93,000
Totals P8,433,000 P8,433,000
Additional Information:
1. On November 1, 2021 Villarey paid Milaor Rental Agency P360,000 for six months’ rent
on the office building commencing that date.
2. Office supplies on hand at December 31, 2021 amounted to P 27,000.
3. Depreciation expense for the furniture amounted to P75,000 for the year.
4. At December 31, 2021, P 105,000 salaries have accrued.
5. The P900,000 note payable was issued on October 1, 2021, it will be repaid at maturity
together with interest at an annual rate of 24%.
KEY TO CORRECTION:
Exercise 5.6
DATE DEBIT CREDIT
PARTICULARS PR
2020
Dec-31 Supplies Expense ₱ 1,725
Supplies ₱ 1,725
Dec-31 Accounts Receivable 2,350
Service Income 2,350
Dec-31 Depreciation Expense 8,000
Accumulated Depreciation 8,000
Dec-31 Salary Expense 4,750
Salary Payable 4,750
Dec-31 Unearned Income 3,000
Service Income 3,000
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Exercise 5.7
DATE DEBIT CREDIT
PARTICULARS PR
2020
Dec-31 Depreciation Expense ₱ 9,000
Accumulated Depreciation ₱ 9,000
Dec-31 Accounts Receivable 6,000
Architect Fees 6,000
Dec-31 Prepaid Insurance 1,200
Insurance Expense 1,200
Dec-31 Salary Expense 3,600
Salary Payable 3,600
Dec-31 Supplies 1,050
Supplies Expense 1,050
Exercise 5.8
DATE DEBIT CREDIT
PARTICULARS PR
2020
Dec-31 Depreciation Expense ₱ 4,440
Accumulated Depreciation ₱ 4,440
Dec-31 Prepaid Rent 5,500
Rent Expense 5,500
Dec-31 Supplies Expense 2,700
Supplies 2,700
Dec-31 Doubtful Accounts Expense 291
Allowance for Doubtful Accounts 291
Dec-31 Insurance Expense 2,000
Prepaid Insurance 2,000
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Exercise 5.9
DATE DEBIT CREDIT
PARTICULARS PR
2015
Dec-31 Rent Expense ₱ 120,000
Prepaid Rent ₱ 120,000
Dec-31 Office Supplies Expense 36,000
Office Supplies 36,000
Dec-31 Depreciation Expense 75,000
Accumulated Depreciation 75,000
Dec-31 Salaries Expense 105,000
Salaries Payable 105,000
Dec-31 Interest Expense 54,000
Interest Payable 54,000
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