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CHAPTER 2 REVIEW OF THE ACCOUNTING PROCESS

Problems

2-1. (TIGER COMPANY)

a. Adjusting entries at December 31, 2012: a. Supplies expense 16,500 Supplies 16,500 25,000-8,500 b. Insurance expense 8,000 Prepaid insurance 8,000 24,000 x 8/24 c. Rent revenue 9,000 Unearned rent revenue 9,000 27,000/3 d. Depreciation expense 30,000 Accumulated depreciation 30,000 (360,000/10) x 10/12 e. Uncollectible accounts expense 6,000 Allowance for uncollectible accounts 6,000 2% x 450,000 – 3,000 = 6,000 f. Interest expense 2,000 Interest payable 2,000 200,000 x .12 x 30/360 g. Merchandise inventory 480,000 Purchase returns and allowances 25,000 Cost of goods sold 415,000 Purchases 900,000 Freight-in 20,000

b. Reversing entries at January 1, 2013 c. Unearned rent revenue 9,000 Rent revenue 9,000 f. Interest payable 2,000 Interest expense 2,000

2-2. (DRAGON COMPANY)

Adjusting entries at December 31, 2012: a. Salary expense 32,000 Salaries payable 32,000 80,000 x 2/5 b. Depreciation expense 35,000 Accumulated depreciation 35,000 420,000 / 12 c. Interest receivable 1,800 Interest revenue 1,800 60,000 x .12 x 3/12

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d. Supplies expense 28,400 Store supplies 12,800 Office supplies 15,600 e. Uncollectible accounts expense 47,500 Allowance for uncollectible accounts 47,500 (5% x 650,000 )+ 15,000 f. Insurance expense 5,280 Prepaid insurance 5,280 g. Prepaid travel expense (or Prepaid expense) 8,100 Travel expense 8,100 h. Prepaid rent 6,000 Rent expense 6,000 18,000 x 2/6 i. Income tax expense 365,916 Income tax payable 365,916 Reported net income 1,352,000 Adjustments: (a) (32,000) (b) (35,000) (c) 1,800 (d) (28,400) (e) (47,500) (f) (5,280) (g) 8,100 (h) 6,000 Correct net income 1,219,729 x 30% =365,916

2-3. (MONKEY CORPORATION)

a. Adjusting entries at December 31, 2012: a. Bad debts expense 1,700 Allowance for bad debts 1,700 b. Insurance expense 1,250 Prepaid insurance 1,250 c. Interest receivable 250 Interest revenue 250 d. Prepaid rent 1,550 Rent expense 1,550 e. Depreciation expense 25,000 Accumulated depreciation 25,000 f. Salary expense 8,000 Salaries payable 8,000 g. Interest expense 200 Interest payable 200 h. Rent revenue 20,000 Unearned rent revenue 20,000

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b. Closing entries (partial) a. Rent revenue 80,000 Interest revenue 3,850 Income summary 83,850 b. Income summary 864,700 Rent expense 7,450 Salaries expense 828,000 Interest expense 1,300 Bad debts expense 1,700 Depreciation expense 25,000 Insurance expense 1,250

c. Reversing entries at January 1, 2013 c. Interest revenue 250 Interest receivable 250 d. Rent expense 1,550 Prepaid rent 1,550 f. Salaries payable 8,000 Salary expense 8,000 g. Interest payable 200 Interest expense 200 h. Unearned rent revenue 20,000 Rent revenue 20,000

2-4. (ROOSTER COMPANY)

Amount of Adjustment

Amount that would appear in Statement of FP

a. Salaries Payable 16,800 16,800 b. Interest Payable 6,750 6,750 c. Advertising Payable 60,000 60,000 d. Accumulated Depreciation 20,000 30,000 e. Office Supplies 58,000 28,000 f. Unearned Plumbing Revenue 108,000 36,000 g. Prepaid Insurance 20,000 40,000

2-5. (SNAKE COMPANY)

a. Adjusting entries at December 31, 2010: a. Financial assets at FVPL 13,000 Unrealized gain on FVPL 13,000 b. Operating expenses 15,200 Prepaid expenses 15,200 Req. bal in prepaid expenses:

144,000 x 4/12 48,000 Office supplies on hand 39,000 Store supplies on hand 23,000 Total 110,000 Reported amount 125,200 Req. decrease in PE 15,200

d. Operating expenses 156,000 Accumulated depreciation 156,000

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e. No entry required. The required balance in accrued interest is P22,500, computed as 200,000 x 15% x 9/12. This amount is already included in the Trade and Other Payables balance.

g. Rent revenue 62,000 Unearned rent revenue 62,000 Required balance in unearned rent

192,000 x 9/12 142,000 Reported balance 80,000 Required increase 62,000

2-6. a. Insurance expense 25,500 Prepaid insurance 25,500 84,000 + 37,500 – 96,000 b. Depreciation expense 14,100 Accumulated depreciation 14,100 133,050 + 8,850 – 127,800 c. Unearned rent 25,000 Rent revenue 25,000 55,000 + 45,000 – 75,000 d. Salaries payable 4,050 Salary expense 4,050 21,430 – 17,380

2-7 a. P1,200,000 Same as given total. The transaction will increase office supplies

and decrease cash whose balances are both reflected in total debit amount.

b. P698,000 Accounts Payable 157,000 R. Abbit, Capital 200,000 Interest Payable 5,000 Accumulated Depreciation 20,000 Notes Payable 220,000 Salaries Payable 96,000 TOTAL 698,000 c. P2,220,000 Accounts Payable 245,000 Accumulated Depreciation (810,000+27,000) 837,000 B. Ox, Capital (1,100,000+410,000-15,000-

27,000-190,000)

1,138,000 TOTAL 2,220,000

d. P744,000 729,000 + 15,000 = 744,000; The use of P12,000 office supplies does not affect the trial balance total.

e. P243,500 Total debits is P243,500 consisting of Cash–P48,000; Accounts receivable–P27,500; Prepaid insurance– P8,000; Equipment–P80,000; Salaries expense–P42,000; Advertising expense–P14,000; Property tax expense–P9,000; and Hoe Rose, Drawing– P15,000. Total credits is P243,500 consisting of Accounts payable–P44,000; Property tax payable–P5,600; Service revenue–P66,900; and Hoe Rose, Capital – P127,000.

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MULTIPLE CHOICE QUESTIONS Theory

MC1 C MC11 C MC2 D MC12 A MC3 D MC13 B MC4 A MC14 C MC5 A MC15 B MC6 B MC16 B MC7 C MC17 C MC8 B MC18 D MC9 D MC19 B MC10 D MC20 A

Problems MC21 B MC22 B 16,000 + 29,000 – 21,000 = 24,000 MC23 A MC24 D 122,500 + 437,500 – 105,000 = 455,000 MC25 C 990,000 + 50,000 – 60,000 = 980,000 MC26 A 400,000 + (15% x 3.0M) = 850,000 MC27 C 36,000 x 34/36 = 34,000; 44,100 – 33,100 = 11,000 MC28 D 60,000 – 17,000 = 43,000 MC29 12,350 - 1,850 + 5,300 = 15,800 MC30 A P0. The post-closing trial balance includes real accounts only. MC31 B 24,900 - 4,500 + 3,600 = 24,000 MC32 A (14,400 x 5/12) + 9,600 + (11,200 x 12/16) = 24,000 MC33 C 30,000 + 45,000 + 20,000 = 95,000 MC34 B 144,000 – 95,000 = 49,000 MC35 A 36,000 x 4/12 = 12,000 MC36 A 1,337,100 + 274,000 – 120,000 + 67,000 = 1,558,100 or 1,684,000 – 274,000 + 120,000 + 80,100 – 52,000 = 1,558,100 MC37 B (7,200 X 21/24) + (3,600 X 2/6) + (24,000 X 27/36) = 25,500 – 28,200 =

2,700 Decrease MC38 A 45,000 x 10% x 30/360 = 375 MC39 B (27,000 x 3/12) + (22,200 x 6/12) + (28,800 x 9/12) + (10,700 x 12/12) =

60,150 – 56,250 = 3,900 Increase MC40 B 11,250 x 2/5 = 4,500 MC41 C 117,000 – (108,000 – 9,000) = 18,000 MC46 C 117,000 – (108,000 – 9,000) = 18,000; 18,000 – 9,000 = 9,000