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PROBLEM 1

Prepare the adjusting entry for Gamba Company under each of the following for the year ending December 31,
2017:
A. Paid P24,000 for a 1-year fire insurance policy to commence on September 1. The amount of premium
was debited to Prepaid Insurance.
B. Borrowed P100,000 by issuing a 1-year note with 7% annual interest to Century Savings Bank on October
1, 2017.
C. Paid P160,000 cash to purchase delivery van (surplus) on January 1. The van was expected to have a 3-
year life and a P10,000 salvage value. Depreciation is computed on a straight-line basis.
D. Received an P18,000 cash advance for a contract to provide services in the future. The contract required
a 1-year commitment starting April 1.
E. Purchased P6,400 of supplies on account. At year end, P750 of supplies remained on hand.
F. Invested P90,000 cash in a certificate of deposit that paid 4% annual interest. The certificate was
acquired on May 1 and carried a 1 year term to maturity.
G. Paid P78,000 cash in advance on September 1 for a 1-year lease on office space.

PROBLEM 2
Listed below is information pertaining to activities of the Alvaro Company that require adjustments for the May
31, 2017 year-end financial statements:
A. Alvaro Company entered into a lease agreement with Evangelista Corporation on November 1, 2016 for
rental of office space for the next 24 months for P156,000. A second lease was signed on February 1, 2017
for storage space for 6 months, with P56,400 paid in advance.
B. On June 1, 2016, the Office Supplies account had a debit balance of P42,600. Office Supplies in the
amount of P165,200 were acquired during the year. A physical count of the office supplies on May 31,
2017 totaled P31,700.
C. Alvaro Company sells magazines by subscription for P15 per copy. During the year, 47,200 two-year
subscriptions were sold. As at June 1, 2016, the Unearned Magazine Revenues account had a balance of
P315,000. At year-end, it is determined that the liability to provide subscribers’ future magazines
amounted to P613,000.
D. On December 31, 2016 Alvaro Company acquired a new computer for P131,400. It is anticipated that the
computer will be used for 4 years with no salvage value.
E. Alvaro Company pays its employees every 8th and 22nd day of the month. There are 5 working days within
a workweek. The last payday was on May 22, 2017 (assume it is a Tuesday). By month-end, there are
already 7 days of accrued salaries. The pay scale at Alvaro is as follows:
Employee Number in Daily Rate per Accrued June 1 - 8
Category Category Employee (May23 – May31)

Executives 3 1,000 P21,000 18,000


Managers 6 750 31,500 27,000
Staff 36 400 100,800 86,400
F. Alvaro Company borrowed P1,000,000 from Dayrit Development Bank on March 1, 2017 and issued a
4% one-year note payable.

Required:
1. Prepare the adjusting entries.
2. Refer to item (e) and record the entry to pay the salaries due on June 8, 2017.
Date Description PR. Debit Credit
2017
Dec. 31 Insurance Expense 8,000.00
Prepaid Insurance 8,000.00
To adjust prepaid insurance.

31 Interest Expense 1,750.00


Interest Payable 1,750.00
To adjust for interest expense incurred for
3 months.

31 Depreciation Expense 50,000.00


Accumulated Depreciation - Van 50,000.00
To adjust for depreciation of delivery van.

31 Unearned Service Revenue 13,500.00


Service Revenue 13,500.00
To adjust for unearned service revenue
earned in 9 months.

31 Supplies Expense 5,650.00


Supplies 5,650.00
To adjust supplies used.

31 Interest Receivable 2,400.00


Interest Income 2,400.00
To adjust for interest earned.

31 Rent Expense 26,000.00


Prepaid Rent 26,000.00
To adjust for rent expired for 4 months.

PROBLEM 2
Date Description PR. Debit Credit
2017
May 31 Rent Expense 45,500.00
Prepaid Rent 45,500.00
To adjust for rent expired for 7 months
(November to May).

31 Rent Expense 37,600.00


Prepaid Rent 37,600.00
To adjust for rent expired for 4 months
(February to May).

31 Office Supplies Expense 176,100.00


Office Supplies 176,100.00
To adjust for office supplies used.

31 Unearned Magazine Subscription Revenues 410,000.00


Magazine Subscription Revenues 410,000.00
To adjust for earned magazine
subscription.

31 Depreciation Expense 13,687.50


Accumulated Depreciation 13,687.50
To adjust for depreciation of computer.

31 Salaries and Wages Expense 153,300.00


Salaries and Wages Payable 153,300.00
To adjust for 7 days accrued salaries.

31 Interest Expense 10,000.00


Interest Payable 10,000.00
To adjust for interest accrued for 3
months.

June 8 Salaries and Wages Payable 153,300.00


Salaries and Wages Expense 131,400.00
Cash 284,700.00
To record payment of salaries for the
period May 23, 2017 to June 8, 2017.