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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Chapter 2 – Review of the Accounting Process

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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Chapter 2 – Review of the Accounting Process

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 Amount that would appear
Adjustment 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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Chapter 2 – Review of the Accounting Process

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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Chapter 2 – Review of the Accounting Process

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