Name: __________________________________________________________ Review on Adjusting Entries

I. Modified True or False. Write TRUE if the statement is correct, and FALSE if incorrect on the space before the number. If FALSE, underline the word or phrase that made the statement wrong. NO ERASURES ALLOWED.

____________1. Interim statements report a company's business activities for a one-year period.

____________2. The cash basis of accounting is an accounting system in which revenues are recorded when cash is

received and

expenses are recorded when cash is paid.

____________3. Before an adjusting entry is made to recognize the cost of expired insurance for the period, Prepaid

Insurance and

Insurance Expense are both overstated.

____________4. A contra account is an account linked with another account; it is added to that account to show the

proper

amount for the item recorded in the associated account.

____________5. In accrual accounting, accrued revenues are recorded as liabilities.

____________6. Depreciation expense for a period is the portion of a plant asset's cost that is allocated to that period.

____________7. Revenue and expense balances are transferred from the adjusted trial balance to the income statement.

____________8. A salary owed to employees is an example of an accrued expense.

____________9. The accrual basis of accounting reflects the principle that revenue is recorded when it is earned, not

when cash is

received.

____________10. A company performs 20 days work on a 30-day contract before the end of the year. The total contract

is valued at

P6,000 and payment is not due until the contract is fully completed. The adjusting entry includes a

P4,000 credit

to unearned revenue.

II. Fill in the Blanks. Choose the word/s from the box below that will make the statement complete.

Compute current account balance

Accrued expensesRecord entry to get from step 1 to step 2

Receipts Adjusted trial balance Unadjusted trial balance

Contra Overstated Understated

OverstatedCompute what the account balance should be

Accrued revenues

Understated Adjunct Disbursements

11. _________________________________ refer to costs incurred in a period that are both unpaid and unrecorded.

_________________________________ refer to revenues earned in a period that are both unrecorded and not yet

received in cash (or other assets).

12. If a prepaid expense account were not adjusted for the amount used, on the balance sheet assets would be

__________________________ and equity would be _______________________________.

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13. A __________________________ account is an account linked with another account, having an opposite normal

balance, and reported as a subtraction from that other account's balance.

14. A(n) ________________________________________ is a listing of all of the accounts in the ledger with their account

balances after adjustments are made.

15. Adjusting is a three-step process (1) ____________________________________, (2)

____________________________________, and (3) ___________________________________.

16. Accrued revenues at the end of one accounting period often result in cash ___________________________ in the next

period.

III. Short Problems. Solve for the following problems independent of each other. Show your solution in good form and properly identify your answer. Write your solution on a separate piece of paper.

1. The Salaries Payable account of Honesto Enterprise were P 56,750 at the end of August and P 28,780 at the end of September. Cash paid for salaries during the month of September was P 180,470. How much was the salaries expense of Honesto Enterprise during the month of September?

2. The following information pertains to Ozone Company’s accounts receivable on December 31, 2013

Days outstanding Estimated Account Estimated Uncollectible0 – 6061 – 120Over 120

P 1, 150, 000P 1, 100, 000P 1, 000, 000

2%3%

P 65, 000

During 2013, Ozone wrote off P 70,000 in Accounts Receivable and recovered P40,000 that had been written off in prior years. Ozone’s January 1, 2013 Allowance for Doubtful Accounts was P 100,000. Under the aging method, what amount should Ozone report as Allowance for Doubtful Accounts on December 31, 2013?

3. Before the month-end adjustments are made, the January 31 trial balance of Warriors Express contains revenues of P 580,000 and expenses of P 178,000. Adjustments are necessary for the following items:

a. Depreciation for January, P 48,000b. Portion of fees collected in advance earned in January, P 110,000c. Fees earned in January, not yet billed to customers, P 65,000d. Portion of prepaid rent applicable to January, P 90,000e. Interest on loan acquired for January, P 8,000

Net income of Warriors Express in January is ___________________.

4. As of December 31, 2013, Clipper Corporation had Notes Receivable amounting to P 590,000 consisting of the following

Received from Amount Date Received Applicable Interest Rate

Thunder Manufacturing P 150,000

February 1, 2013 10%

Wizards Training Institute

P 180,000

June 31, 2013 8%

Bucks Sky Taxi Services P 75,000 December 1, 2012

11%

Pistons Corporation P 185,000

October 31, 2013

9%

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The company’s policy is to collect the interest together with the principal amount at the maturity date of the notes. How much interest revenue is to be recognize by Clipper Corporation on December 31, 2013?

5. The income statement of Dolan Corporation for 2012 included the following items:Interest revenue P 131,000Salaries and wages expense 170,000Insurance expense 15,200

The following balances have been excerpted from Dolan Corporation's balance sheets:December 31, 2012 December 31, 2011

Interest receivable P 18,200 P 15,000Salaries and wages payable 17,800 8,400Prepaid insurance 2,200 3,000

The cash paid for insurance premiums during 2012 was __________________________.

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