CHAPTER 1

Review of the Accounting Process

E 1-1
1. Unearned Revenue 11. Accrued Expense
2. Prepaid Expense 12. Accrued Revenue
3. Accrued Expense 13. Prepaid Expense
4. Accrued Expense 14. Unearned Revenue
5. Prepaid Expense 15. Accrued Expense
6. Unearned Revenue
7. Accrued Revenue
8. Accrued Expense
9. Unearned Revenue
10. Accrued revenue

E 1-2
1. Allowance for Uncollectible Accounts
2. Rent Expense
3. Office Supplies Expense
4. Salaries Payable
5. Prepaid Insurance
6. Interest Revenue
7. Interest Payable
8. Unearned Rent
9. Accumulated Depreciation
10. Income Summary

E 1-3
1. a. Unearned Rent 25,000
Rent Revenue 25,000
P300,000 x 1/12 = P25,000

No reversing entry

b. Insurance Expense 75,000

Prepaid Insurance 75,000
P90,000 x 10/12 = P75,000

No reversing entry

2. a. Rent Revenue 275,000

Unearned Rent 275,000
P300,000 x 11/12 = P275,000

Unearned Rent 275,000

Rent Revenue 275,000

b. Prepaid Insurance 15,000

Insurance Expense 15,000
P90,000 x 2/12 = P15,000
PC Chapter 2 page 2

Insurance Expense 15,000

Prepaid Insurance 15,000

E 1-4
1. a. Interest Expense 40,000
Interest Payable 40,000
P2,000,000 x 6% x 4/12 = P40,000

b. Prepaid Insurance 50,000

Insurance Expense 50,000
P72,000 x 25/36 = P50,000

c. Prepaid Rent 330,000

Rent Expense 330,000
P360,000 x 11/12 = P330,000

d. Uncollectible Accounts Expense 60,000

Allowance for Uncollectible Accounts 60,000

e. Salary Expense 180,000

Salaries Payable 180,000
P450,000 x 2/5 = P180,000

f. Depreciation Expense Office Equipment 106,000

Accumulated Depreciation Office Equipment 106,000
P480,000 5 = P96,000 +
P120,000 5 x 5/12 = P10,000

g. Supplies on Hand 4,500

Supplies Expense 4,500

h. Rental Revenue 120,000

Unearned Rent 120,000
P180,000 x 4/6 = P120,000

i. Income Summary 180,000

Merchandise Inventory 180,000

Merchandise Inventory 220,000

Income Summary 220,000

2. a, b, c, e, g & h

E 1-5
1. a. Income Summary 50,000
Inventory, beg. 50,000

Inventory, end 140,000

Income Summary 140,000
PC Chapter 2 page 3

b. Inventory, end 140,000

Purchases Returns 20,000
Cost of Goods Sold 2,000,000
Purchases 2,100,000
Freight-in 10,000
Inventory, beg. 50,000

2. Approach 2
a. Sales 5,000,000
Interest Revenue 25,000
Income Summary 5,025,000
b. Income Summary 2,980,000
Inventory, end 140,000
Purchases Returns and Allowances 20,000
Inventory, beg. 50,000
Purchases 2,100,000
Freight-In 10,000
Administrative Expense 500,000
Sales Returns 5,000
Sales Discounts 10,000
Selling Expenses 450,000
Interest Expense 15,000
c. Income Summary 2,045,000
Castro, Capital 2,0450,000

d. Castro, Capital 500,000

Castro, Drawing 500,000

E 1-6
1. A 6. B or C 11. B 16. B
2. A 7. A 12. A 17. A
3. A 8. C 13. A 18. C
4. A 9. A 14. A 19. B
5. B 10. B 15. C 20. B

P 1-1
1. a. Insurance Expense 12,000
Prepaid Insurance 12,000
P48,000 x 3/12 = P12,000

No reversing entry

b Rent Revenue 210,000

Unearned Rent 210,000
P270,000 x 7/9 = P210,000
PC Chapter 2 page 4

Unearned Rent 210,000

Rent Revenue 210,000

c. Supplies 4,500
Supplies Expense 4,500
P12,000 P3,000 = P9,000

Supplies Expense 4,500

Supplies 4,500

d. Depreciation Expense 52,500

Accumulated Depreciation 52,500
P350,000/5 x 9/12 = P52,500

no reversing entry

e. Uncollectible Accounts Expense 8,000

Allowance for Uncollectible Accounts 8,000

no reversing entry

f. Interest Receivable 1,500

Interest Revenue 1,500
P150,000 x 12% x 30/360 = P1,500

Interest Revenue 1,500

Interest Receivable 1,500

g. Salary Expense 155,000

Salaries Payable 155,000

Salaries Payable 155,000

Salary Expense 155,000

h. Merchandise Inventory 122,000

Income Summary 122,000

P 1-2
a. Income Summary 120,000
Merchandise Inventory 120,000

b. Merchandise Inventory 150,000

Income Summary 150,000

c. Sales 5,700,000
Purchase Returns & Allowance 90,000
Income Summary 5,790,000
PC Chapter 2 page 5

d. Income Summary 4,029,000

Sales Returns and Allowance 150,000
Purchases 3,000,000
Freight-in 120,000
Supplies Expense 18,000
Insurance Expense 27,000
Salary Expense 540,000
Depreciation Expense 24,000
Office Expense 150,000

e. Income Summary 1,791,000

Olson, Capital 1,791,000

f. Olson, Capital 180,000

Olson, Drawing 180,000

P 1-3

Adjusting Income Statement Statement of Financial Position

Entry Revenue Expenses Net Income Assets Liabilities Capital
a. NE + - NE + -
b. + NE + + NE +
c. NE + - - NE -
d. NE + - - NE -
e. NE + - - NE -
f. + NE + NE - +
g. NE + - NE + -

P 1-4
1. a. Commissions Receivable 7,200
Commissions Income 7,200

b. Rent Expense 36,000

Prepaid Rent 36,000

c. Office Supplies Expense 6,600

Office Supplies 6,600

d. Depreciation Expense
Accumulated Depreciation 2,400
2,400
e. Salaries Expense 4,800
Salaries Payable 4,800

f. Unearned Commissions 8,000

Commissions Income 8,000

g. Interest Expense 1,200

Interest Payable 1,200
PC Chapter 2 page 6

2. a. Income Summary 111,000

Salaries Expense 64,800
Rent Expense 36,000
Office Supplies Expense 6,600
Depreciation Expense Office Equipment 2,400
Interest Expense 1,200

b. Commissions Income 175,200

Income Summary 175,200

c. Income Summary 64,200

Valdez, Capital 64,200

d. Valdez, Capital 32,000

Valdez, Drawing 32,000

3. Net Income = P64,200

P 1-5
1. Insurance Expense 30,000
Prepaid Insurance 30,000

2. Depreciation Expense Office Equipment 75,000

Depreciation Expense Automobile 260,000
Accumulated Depreciation Office Equipment 75,000
Accumulated Depreciation - Automobile 260,000

3. Unearned Management Fees 80,000

Management Fees Earned 80,000
P120,000 x 4/6 = P80,000

4. Prepaid Advertising 40,000

Advertising Expense 40,000
P100,000 x 2/5 = P40,000
Multiple Choice
1. C 4. C 7. D 10. B 13. B
2. D 5. B 8. C 11. A 14. A
3. C 6. D 9. A 12. C 15. C
TM 1
1. T 6. F 11. F 16. F 21. T
2. T 7. F 12. F 17. T 22. T
3. T 8. F 13. F 18. F 23. T
4. T 9. T 14. F 19. T 24. F
5. F 10. T 15. T 20. T 25. F
TM 2
1. D 6. B 11. B 16. B
2. C 7. C 12. A 17. D
3. C 8. C 13. D 18. B
4. B 9. B 14. C 19. B
5. A 10. B 15. C 20. C
PC Chapter 2 page 7

TM 3
1. B 6. D 11. B 16. A 21. B
2. D 7. C 12. C 17. D 22. C
3. D 8. C 13. A 18. A 23. A
4. B 9. A 14. C 19. C 24. D
5. D 10. A 15. C 20. D 25. B

TM4
1. N 5. N 9. N 13. Y 17. Y
2. Y 6. N 10. Y 14. Y 18. Y
3. N 7. Y 11. N 15. Y 19. Y
4. N 8. Y 12. N 16. Y 20. Y

TM 5
1. O 6. F 11. P 16. Q
2. B 7. E 12. T 17. V
3. H 8. A 13. M 18. W
4. N 9. I 14. G 19. S
5. K 10. X 15. Z 20. D