CHAPTER 2

REVIEW OF THE ACCOUNTING PROCESS

Problems
2-1.

(TIGER COMPANY)
a.
Adjusting entries at December 31, 2012:
a.

b.

c.

d.

e.

f.

g.

b.

2-2.

Supplies expense
Supplies
25,000-8,500

16,500
16,500

Insurance expense
Prepaid insurance
24,000 x 8/24

8,000

Rent revenue
Unearned rent revenue
27,000/3

9,000

8,000

9,000

Depreciation expense
Accumulated depreciation
(360,000/10) x 10/12

30,000
30,000

Uncollectible accounts expense

Allowance for uncollectible accounts
2% x 450,000 3,000 = 6,000

6,000

Interest expense
Interest payable
200,000 x .12 x 30/360

2,000

Merchandise inventory
Purchase returns and allowances
Cost of goods sold
Purchases
Freight-in

6,000

2,000
480,000
25,000
415,000
900,000
20,000

Reversing entries at January 1, 2013

c.
Unearned rent revenue
Rent revenue

9,000

f.

2,000

Interest payable
Interest expense

2,000

(DRAGON COMPANY)
Adjusting entries at December 31, 2012:
a.
Salary expense
Salaries payable
80,000 x 2/5
b.

c.

9,000

Depreciation expense
Accumulated depreciation
420,000 / 12
Interest receivable
Interest revenue
60,000 x .12 x 3/12

32,000
32,000
35,000
35,000
1,800
1,800

Chapter 2 Review of the Accounting Process

d.

e.

f.
g.
h.

i.

2-3.

Supplies expense
Store supplies
Office supplies

28,400

Uncollectible accounts expense

Allowance for uncollectible accounts
(5% x 650,000 )+ 15,000

47,500

12,800
15,600

Insurance expense
Prepaid insurance

5,280

Prepaid travel expense (or Prepaid expense)

Travel expense

8,100

Prepaid rent
Rent expense
18,000 x 2/6

6,000

5,280

c.
d.
e.
f.
g.
h.

8,100
6,000

Income tax expense

Income tax payable
Reported net income
Adjustments: (a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Correct net income

365,916
365,916
1,352,000
(32,000)
(35,000)
1,800
(28,400)
(47,500)
(5,280)
8,100
6,000
1,219,729

(MONKEY CORPORATION)
a.
Adjusting entries at December 31, 2012:
a.
Bad debts expense
Allowance for bad debts
b.

47,500

Insurance expense
Prepaid insurance

x 30%

=365,916

1,700
1,700
1,250
1,250

Interest receivable
Interest revenue

250
250

Prepaid rent
Rent expense

1,550
1,550

Depreciation expense
Accumulated depreciation
Salary expense
Salaries payable

25,000
25,000
8,000
8,000

Interest expense
Interest payable

200
200

Rent revenue
Unearned rent revenue

20,000
20,000

Chapter 2 Review of the Accounting Process

b.

Closing entries (partial)

a.
Rent revenue
Interest revenue
Income summary
b.

c.

f.
g.
h.

Income summary
Rent expense
Salaries expense
Interest expense
Bad debts expense
Depreciation expense
Insurance expense

864,700
7,450
828,000
1,300
1,700
25,000
1,250
250
250

Rent expense
Prepaid rent

1,550

Salaries payable
Salary expense

8,000

1,550
8,000

Interest payable
Interest expense

200
200

Unearned rent revenue

Rent revenue

20,000
20,000

(ROOSTER COMPANY)
a.
b.
c.
d.
e.
f.
g.

2-5.

83,850

Reversing entries at January 1, 2013

c.
Interest revenue
Interest receivable
d.

2-4.

80,000
3,850

Amount of
Adjustment
16,800
6,750
60,000
20,000
58,000
108,000
20,000

Salaries Payable
Interest Payable
Advertising Payable
Accumulated Depreciation
Office Supplies
Unearned Plumbing Revenue
Prepaid Insurance

(SNAKE COMPANY)
a.
Adjusting entries at December 31, 2010:
a.
Financial assets at FVPL
Unrealized gain on FVPL
b.

d.

Operating expenses
Prepaid expenses
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
Operating expenses
Accumulated depreciation

Amount that would appear

in Statement of FP
16,800
6,750
60,000
30,000
28,000
36,000
40,000

13,000
13,000
15,200
15,200

156,000
156,000

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
Unearned rent revenue
Required balance in unearned rent
192,000 x 9/12
142,000
Reported balance
80,000
Required increase
62,000

62,000

Insurance expense
Prepaid insurance
84,000 + 37,500 96,000

25,500

Depreciation expense
Accumulated depreciation
133,050 + 8,850 127,800

14,100

Unearned rent
Rent revenue
55,000 + 45,000 75,000

25,000

62,000

2-6.
a.

b.

c.

d.

25,500

14,100

Salaries payable
Salary expense
21,430 17,380

25,000
4,050
4,050

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
R. Abbit, Capital
Interest Payable
Accumulated Depreciation
Notes Payable
Salaries Payable
TOTAL

157,000
200,000
5,000
20,000
220,000
96,000
698,000

c.

P2,220,000

Accounts Payable
Accumulated Depreciation (810,000+27,000)
B. Ox, Capital (1,100,000+410,000-15,00027,000-190,000)
TOTAL

245,000
837,000
1,138,000
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 CashP48,000; Accounts

receivableP27,500; Prepaid insurance P8,000; Equipment
P80,000; Salaries expenseP42,000; Advertising expense
P14,000; Property tax expenseP9,000; and Hoe Rose,
Drawing P15,000.
Total credits is P243,500 consisting of Accounts payable
P44,000; Property tax payableP5,600; Service revenue
P66,900; and Hoe Rose, Capital P127,000.

Chapter 2 Review of the Accounting Process

MULTIPLE CHOICE QUESTIONS
Theory
MC1
MC2
MC3
MC4
MC5
MC6
MC7
MC8
MC9
MC10

C
D
D
A
A
B
C
B
D
D

MC11
MC12
MC13
MC14
MC15
MC16
MC17
MC18
MC19
MC20

C
A
B
C
B
B
C
D
B
A

Problems
MC21
MC22
MC23
MC24
MC25
MC26
MC27
MC28
MC29
MC30
MC31
MC32
MC33
MC34
MC35
MC36

B
B
A
D
C
A
C
D

MC37

MC38
MC39

A
B

MC40
MC41
MC46

B
C
C

A
B
A
C
B
A
A

16,000 + 29,000 21,000 = 24,000

122,500 + 437,500 105,000 = 455,000
990,000 + 50,000 60,000 = 980,000
400,000 + (15% x 3.0M) = 850,000
36,000 x 34/36 = 34,000; 44,100 33,100 = 11,000
60,000 17,000 = 43,000
12,350 - 1,850 + 5,300 = 15,800
P0. The post-closing trial balance includes real accounts only.
24,900 - 4,500 + 3,600 = 24,000
(14,400 x 5/12) + 9,600 + (11,200 x 12/16) = 24,000
30,000 + 45,000 + 20,000 = 95,000
144,000 95,000 = 49,000
36,000 x 4/12 = 12,000
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
(7,200 X 21/24) + (3,600 X 2/6) + (24,000 X 27/36) = 25,500 28,200 =
2,700 Decrease
45,000 x 10% x 30/360 = 375
(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
11,250 x 2/5 = 4,500
117,000 (108,000 9,000) = 18,000
117,000 (108,000 9,000) = 18,000; 18,000 9,000 = 9,000