Accounting 162 – Material 002

The following information pertains to ABC’s depreciable assets:

1. Machine A was purchased for P150,000 on January 1, 2013. The entire cost was expensed in the year of acquisition. The estimated
useful life of this machine is 15 years with no residual value. Prepare the entry to record the depreciation for the year and the entry
(if any) to record the cumulative effect of the change.
2. Machine B cost P525,000 and was acquired on January 1, 2014. On the acquisition date, the expected useful life was 12 years with
no residual value. The straight line depreciation method was used. On January 2, 2018, it was estimated that the remaining life of
the asset would be 4 years and that there would be a P25,000 residual value. Prepare the entry to record the depreciation for the
year and the entry (if any) to record the cumulative effect of the change. 81,250
3. A building was purchased on January 3, 2015 for P3,000,000. The building was expected to have a useful life of 20 years with no
residual value. The straight line depreciation method was used. On January 1, 2018, a change was made to the sum-of-the-years’
digit. Prepare the entry to record the depreciation for the year and the entry (if any) to record the cumulative effect of the change.
4. What is the carrying value of machine B on January 1, 2018? 350,000
5. The book value of the building on December 31, 2018 is 2,266,667

6. The income statement of ABC shows unadjusted net income of P125,000 for the year ended December 31, 2018. The following are
the errors under consideration:
 December 31, 2017, inventory overstated by P22,500.
 December 31, 2018, inventory understated by P37,500.
 A P10,000 customer’s deposit received in December 2018 was credited to sales in 2018. The goods were actually shipped in
January 2019.
Compute the adjusted net income of ABC for the year ended December 31, 2018. 175,000

7. The following errors were made in preparing a trial balance: the P1,350 balance of Inventory was omitted; the P450 balance of
Prepaid Insurance was listed as a credit; and the P300 balance of Salaries Expense was listed as Utilities Expense. The debit and
credit totals of the trial balance would differ by 2,250

CASE 1 You have been engaged to examine the financial statements of ABC for the year ended December 31, 2018. Your examination
reveals the following situations: Prepare the necessary adjusting journal entries at December 31, 2018. Ignore income tax consideration.
8. Depreciation of P16,000 for 2018 on equipment was not recorded.
9. The physical inventory count on December 31, 2017, improperly excluded merchandise costing P95,000 that had been temporarily
stored in a public warehouse. ABC uses a periodic inventory system.
10. The physical inventory count on December 31, 2018, improperly included merchandise with a cost of P42,500 that had been recorded
as a sale on December 29, 2018, and held for the customer to pick up on January 2, 2019.
11. A collection of P28,000 on account from a customer received on December 31, 2018, was not recorded until January 3, 2019.
12. In 2018, ABC sold for P18,500 fully depreciated equipment that originally cost P110,000. The proceeds from the sale were credited
to the equipment account.
13. During December 2018, a competitor company filed a patent infringement suit against ABC claiming damages of P1,000,000. The
company’s legal counsel has indicated that an unfavorable outcome is probable and a reasonable estimate of the court’s award to
the competitor is P600,000. The company has not reflected or disclosed this situation in the financial statements.
14. ABC has a portfolio of current equity securities acquired in 2017 for trading purposes. No valuation entry has been made. Information
on cost and market value is as follows:
Cost Market
December 31, 2017 P475,000 P475,000
December 31, 2018 475,000 500,000
15. At December 31, 2018, an analysis of payroll information shows accrued salaries of P61,000. The accrued salaries payable account
had a balance of P80,000 at December 31, 2018, which was unchanged from its balance at December 31, 2017.
16. A piece of equipment was acquired on January 2, 2018 for P160,000 and was charged to repairs expense. The equipment is expected
to have a useful life of 8 years and no residual value. ABC normally uses the straight line method to depreciate this type of equipment.
17. A P75,000 insurance premium paid on July 1, 2017 for a policy that expires on June 30, 2012, was charged to insurance expense.
18. A patent was acquired at the beginning of 2017 for P250,000. No amortization has been recorded since its acquisition. The patent
had a 10 year useful life on the date of acquisition.

8. DE 16K; A/D 16K

9. COGS/ INVNTORY BEG 95K; R/E 95K
10. COGS 42.5K; INVTY 42.5 K
11. CASH; A/R 28K
12. DR. A/D 1110K; CR. GAIN 18.5; EQUIPMNT 91.5K
13. LOSS 600K; LIAB 600K
14. TS 25K; UNREALIZED GAIN 25K
15. SP 19K; CR SE 19K
16. DE 20K EQUIPMNT 160K; CR, R/E 160K; A/D 20K
17. I/E 25K; PREP INS 37.5; CR. R/E 62.5K
18. AMORT 26K R/E 25K; CR PATENT 50K

CASE 2 While reviewing the books of your employer, you found out that certain adjustment s had been overlooked at the end of 2017
and 2018. You also discovered that other items had been improperly recorded. These omissions and other failures for each year are
summarized as follows: December
2017 2018
Salaries payable 145,600 130,000
Interest receivable 43,200 35,500
 Prepaid insurance 64,000 51,300
Advances from customers* 78,400 93,500
Equipment** 94,000 87,000
* Collections from customers had been recorded as sales but should have been recognized as advances from customers because goods
were not shipped until the following year.
** Capital expenditures had been recorded as repairs but should have been charged to equipment; the depreciation rate is 10% per year,
but depreciation in the year of the expenditure is to be recognized at 5%.

Assuming that the nominal accounts for 2018 have not yet been closed into the income summary account, Prepare all the necessary
adjusting journal entries on December 31, 2018.
1 RE 145,600 SE 15600 SP 130,000
2. IR 35500 II 7700 RE 43200
3. PI 51300 IE 12700 RE 64000
4. S 15100 RE 78400 Adv 93500
5. E 181000 DE 13750 AD 18450 Rep 87000 RE 89300