Answered: A. 1. Entity A received a 12%,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A. 1. Entity A received a 12%, ₱200,000, one-year, note receivable on October 1, 20x1. Entity A uses a calendar year period. The principal and interest on the note are due on October 1, 20x2. What is the adjusting entry to take up accrued interest income on December 31, 20x1? Dec. 31, 20x1 Interest receivable (200,000 x 12% x 3/12) Interest income to accrue interest income earned but not yet collected 6,000 6,000 2. Entity A is renting out its building to a tenant for a monthly rent of ₱30,000. As of December 31, 20x1, the tenant has not yet paid the rent for the months of November and December. What is the adjusting entry to take up accrued rent income on December 31, 20x1? 3. Entity A issued a 12%, ₱500,000, one-year, note payable on July 1, 20x1. The principal and interest are due on July 1, 20x2. What is the adjusting entry to take up accrued interest expense on December 31, 20x1? 4. Entity A has equipment with a historical cost of ₱1,000,000. The equipment was estimated to have a 10-year useful life when it was acquired four years ago. What is the adjusting entry to take up the annual depreciation expense on December 31, 20x1? Dec. 31, 20x1 Rent receivable (30,000 x 2 months) Rent income to accrue rent income 60,000 60,000 Dec. 31, 20x1 Interest expense (500,000 x 12% x 6/12) Interest payable to accrue interest expense incurred but not yet paid 30,000 30,000 Dec. 31, 20x1 Depreciation expense (1M ÷ 10 yrs.) Accumulated depreciation to record the depreciation expense for the period 100,000 100,000 1 5. Entity A has total accounts receivable of ₱640,000 on December 31, 20x1. Of that amount, ₱70,000 is doubtful of collection. What is the adjusting entry to take up the uncollectible accounts expense on December 31, 20x1? II: METHODS OF INITIAL RECORDING OF INCOME AND EXPENSE Use the following information for the next two items: Entity A provides bookkeeping services to Entity B for a monthly retainer fee (fixed monthly fee) of ₱100,000. On December 1, 20x1, Entity A receives advanced fees of ₱300,000 covering the months of December 20x1 and January and February of 20x2. 1. Provide the journal entry to record the receipt of the advanced fee on December 1, 20x1 under each of the following methods: (a) Liability method and (b) Income method. Dec. 31, 20x1 Bad debts expense Allowance for bad debts to record the bad debts expense for the period 70,000 70,000 Liability method Income method Dec. 1, 20x1 Cash 300,000 Unearned income 300,000 to record the receipt of 3months advance fees Dec. 1, 20x1 Cash 300,000 Service fee 300,000 to record the receipt of 3months advance fees 2. Provide the adjusting entry on December 31, 20x1 under each of the following methods: (a) Liability method and (b) Income method. Liability method Income method Dec. 31, 20x1 Unearned income 100,000 Service fee 100,000 to recognize the earned portion of the advance fees Dec. 31, 20x1 Service fee 200,000 Unearned income 200,000 to recognize the unearned portion of the advance fees 2 Use the following information for the next two items: Entity A prepays one-year insurance for ₱240,000 on September 1, 20x1. 3. Provide the journal entry to record the prepayment of the insurance on September 1, 20x1 under each of the following methods: (a) Asset method and (b) Expense method. 240,000/12 = 20,000 per month 4. Provide the adjusting entry on December 31, 20x1 under each of the following methods: (a) Asset method and (b) Expense method. Asset method Expense method Sept. 1, 20x1 Prepaid insurance 240,000 Cash 240,000 to record the prepayment of 1-year insurance Sept. 1, 20x1 Insurance expense 240,000 Cash 240,000 to record the prepayment of 1-year insurance Asset method Expense method Dec. 31, 20x1 Insurance expense 80,000 Prepaid insurance 80,000 to recognize the expired portion of the 1-year insurance Dec. 31, 20x1 Prepaid insurance 160,000 Insurance expense 160,000 to recognize the unexpired portion of the 1-year insurance Prepaid insurance 240,000 – 80,000 = 160,000 Insurance exp 80,000 Insurance exp 240,000 -160,000 = 80,000 Prepaid Insurance = 160,000

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