Chapter 9

Measuring Business Income: The Adjusting Process

Exercises

Exercise 1

a. The error will overstate the debits by P4,500 or understate the credits by
P4,500.

b. The total debits will still be equal to the total credits. But accounts payable
will be overstated by P2,000 while accounts receivable will be overstated by
P2,000.

c. The total debits will still be equal to the total credits but both totals will be
understated by P5,040.

d. The total debits will still be equal to the total credits. However, equipment will
be understated by P6,000 while supplies will be overstated by P6,000.

Exercise 2

Unadjusted Trial Balance Corrections Corrected Trial Balance

DR CR DR CR DR CR
Cash 38,400 (a) 4,000 (b) 1,800 40,600
Accounts receivable 56,600 (c) 1,200 57,800
Supplies 1,200 (d) 1,200 24,000
Prepaid insurance 1,800 (e) 1,800 3,600
Equipment 84,000 84,000
Accounts payable 454,000 (f) 6,800 38,600
Jun Gomez, Capital 115,600 (i) 4,000 115,600
Jun Gomez, Withdrawal 7,000 (h) 14,000 11,000
Revenues 59,200 59,200
Salaries expense 2,600 26,000
Rent expense 6,000 6,000
Advertising expense 3,400 3,400
Utility expense 260 (j) 2,340 2,600
217,660 227,200
Note payable
(g) 24,000 24,000
237,400 237,400

Exercise 3

1. b credit column 6. b credit column

2. a debit column 7. a debit column
3. b credit column 8. b debit column
4. a credit column 9. b credit column
5. b debit column 10. b debit column
2 Chapter 9

Exercise 4

1. asset 7. asset
2. asset 8. asset
3. liability 9. liability
4. revenue 10. revenue
5. expense 11. expense
6. expense 12. asset

Exercise 5

a. 8 f. 7
b. 1 g. 5
c. 9 h. 2
d. 10 i. 4
e. 6 j. 3

Exercise 6

a. 4 e. 1
b. 6 f. 2
c. 5 g. 3
d. 7
 Measuring Business Income: The Adjusting Process 3

Exercise 7

Pongkys Sanitize Services Co.

Work Sheet
For the Year Ended December 31, 2008

Trial Balance Adjustments Adjusted Trial Balance

Debit Credit Debit Credit Debit Credit
Cash 60,000 60,000
Accounts receivable 250,000 (a) 40,000 290,000
Supplies 40,000 (b) 20,000 20,000
Prepaid insurance 60,000 (c) 40,000 20,000
Land 100,000 100,000
Equipment 140,000 140,000
Accumulated depreciation
Equipment 10,000 (d) 20,000 30,000
Accounts payable 130,000 130,000
Wages payable 0 (e) 20,000 20,000
Del Cee, Capital 410,000 410,000
Del Cee, Drawing 40,000 40,000
Fees Earned 300,000 (a) 40,000 340,000
Wages expense 80,000 (e) 20,000 100,000
Rent expense 40,000 40,000
Insurance expense 0 (c) 40,000 40,000
Utilities expense 20,000 20,000
Depreciation expense 0 (d) 20,000 20,000
Supplies expense 0 (b) 20,000 20,000
Miscellaneous expense 20,000 20,000
Total 850,000 850,000 140,000 140,000 930,000 930,000
4 Chapter 9

Exercise 8

A/N: Please change column headings to Adjusted Trial Balance, Income

Statement and Balance Sheet, respectively.

Sandys Sanitize Services Co.

Work Sheet
For the Year Ended December 31, 2008

Adjusted Trial Balance Income Statement Balance Sheet

Debit Credit Debit Credit Debit Credit
Cash 60,000 60,000
Accounts receivable 290,000 290,000
Supplies 20,000 20,000
Prepaid insurance 20,000 20,000
Land 100,000 100,000
Equipment 140,000 140,000
Accumulated depreciation
Equipment 30,000 30,000
Accounts payable 130,000 130,000
Wages payable 20,000 20,000
Sandy Park, Capital 410,000 410,000
Sandy Park, Drawing 40,000 40,000
Fees Earned 340,000 340,000
Wages expense 100,000 100,000
Rent expense 40,000 40,000
Insurance expense 40,000 40,000
Utilities expense 20,000 20,000
Depreciation expense 20,000 20,000
Supplies expense 20,000 20,000
Miscellaneous expense 20,000 20,000
Total 930,000 930,000 260,000 340,000 590,000
Net income (loss) 80,000 80,000
340,000 340,000 670,000 670,000
 Measuring Business Income: The Adjusting Process 5

Exercise 9

PUB Service Co.

Statement of Owners Equity
For the year ended December 31, _____

Miguel Roces, Capital, January 1 P1,437,500

Add Net Income 332,500
1,770,000
Less Drawings 100,000
Miguel Roces, Capital, December 31 P1,670,000

Exercise 10

Errors

1. Balance Sheet should be as at August 31, 2008

2. Accounts payable should be listed in the current liabilities section.

3. Land should be under the Property, Plant and Equipment section.

4. Accumulated depreciation for Building and Equipment should be shown as

contra-asset accounts in the PPE section.

5. Accounts receivable should be listed among the current asset accounts.

6. Net loss should be deducted from P. Candelaria, capital account.

7. Wages payable should be listed among the current liabilities accounts.

6 Chapter 9

Sixteen Candles Company

Balance Sheet (as corrected)
August 31, 2008

Assets

Current Assets
Cash P 51,700
Accounts receivable 53,900
Supplies 5,900
Prepaid insurance 16,000
Total current assets P127,500
Property, Plant and Equipment
Land P750,000
Building P555,000
Less: Accumulated depreciation 230,000 325,000
Equipment 282,500
Less: Accumulated depreciation 160,000 122,500
Total PPE 1,197,500
Total Assets P1,325,000

Liabilities and Owners Equity

Current Liabilities
Accounts payable P 43,900
Wages payable 9,750
Total current liabilities P 53,650

Owners Equity
P. Candelaria, Capital, January 1 1,271,350
Less: Net loss 155,000
P. Candelaria, Capital, December 31 1,116,350
Total Liabilities and Owners Equity P1,170,000

There is a difference between the total assets and total liabilities and owners
equity of P155,000. One possible explanation is since the net loss account has
a credit balance of P155,000 and just erroneously included in the current
liabilities section, then this could in reality be net income which should be added
to the capital account.
 Measuring Business Income: The Adjusting Process 7

Exercise 11

Green Badge Service

Preparation of Adjusted Trial Balance
October 31, 2007

Trial Balance Adjustments Adjusted Trial Balance

Debit Credit Debit Credit Debit Credit
Cash 30,000 30,000

Accounts receivable 65,000 (a) 9,000 74,000

Supplies 10,400 (b) 2,400 8,000

Office furniture 293,000 293,000

Accumulated depreciation 110,600 (c) 3,600 114,200

Salary payable (d) 6,000 6,000

Unearned revenue 9,000 (e) 2,100 6,900

Capital 263,400 263,400

Owners withdrawals 62,000 62,000

Service revenue 118,300 (a) 9,000 129,400

(e) 2,100

Salary expense 26,900 (d) 6,000 32,900

Rent expense 14,000 14,000

Depreciation expense (c) 3,600 3,600

Supplies expense (b) 2,400 2,400

501,300 501,300 23,100 23,100 519,900 519,900

8 Chapter 9

Multiple Choice Questions

1. c 6. d 11. c
2. c 7. b 12. b
3. c 8. c 13. a
4. a 9. c 14. c
5. c 10. b 15. d

Test Material

Test Material 9-1

Cash Accounts Receivable

Dec. 2 120,000 Dec. 2 5,000 Dec. 18 17,000 Dec. 28 6,000
9 8,000 3 30,000 Bal. 11,000
21 90,000 12 2,000 Adj. 4,000
28 6,000 26 3,000 Bal. 15,000
30 16,000
Bal. 87,000

Supplies Equipment
Dec. 5 3,000 Adj. 2,000 Dec. 3 30,000
Bal. 1,000

Accumulated Depreciation Equipment Furniture

Adj. 500 Dec. 4 36,000

Accumulated Depreciation Furniture Accounts Payable

Adj. 600 Dec. 26 3,000 Dec. 4 36,000
5 3,000
Bal. 36,000
 Measuring Business Income: The Adjusting Process 9

Test Material 9-2

Requirement (1)

Gabriel Liwayway, Speech Therapist

Trial Balance
October 31, 2008

Trial Balance Adjustments Adjusted Trial Balance

Debit Credit Debit Credit Debit Credit
Cash P 32,600 32,600
Accounts Receivable 16,000 (a) 4,000 20,000
Prepaid Rent 8,000 (b) 2,000* 6,000
Supplies 1,200 (c) 800 400
Furniture 30,000 30,000
Accumulated Depreciation P 6,000 (d) 500** 6,500
Accounts Payable 5,600 5,600
Salary Payable (e) 800*** 800
Gabriel Liwayway, Capital 72,000 72,000
Gabriel Liwayway, Drawing 7,200 7,200
Consulting Service Revenue 14,800 (a) 4,000 18,800
Salary Expense 2,800 (e) 800*** 3,600
Rent Expense (b) 2,000* 2,000
Utilities Expense 600 600
Depreciation Expense (d) 500** 500
Supplies Expense (c) 800 800
P 98,400 P 98,400 8,100 8,100 103,700 103,700

_____
* P8,000 4 = P2,000
** P30,000 5 = P6,000 12 = P500
*** P4,000 5 = P800

Requirement (2)
10 Chapter 9

Gabriel Liwayway, Speech Therapist

Income Statement
For the Month Ended October 31, 2007
Revenues:
Consulting service revenue P18,800
Expenses:
Salary expense P3,600
Rent expense 2,000
Supplies expense 800
Utilities expense 600
Depreciation expense 500
Total expenses 7,500
Net income P11,300

Gabriel Liwayway, Speech Therapist

Statement of Owners Equity
For the Month Ended October 31, 2007
Gabriel Liwayway, capital, September 30, 2007 P72,000
Add: Net income 11,300
83,300
Less: Withdrawals 7,200
Gabriel Liwayway, capital, October 31, 2007 P76,100

Gabriel Liwayway, Speech Therapist

Balance Sheet
October 31, 2007
ASSETS LIABILITIES

Cash P32,600 Accounts payable P 5,600

Accounts receivable 20,000 Salary payable 800
Prepaid rent 6,000 Total liabilities P 6,400
Supplies 400
Furniture P30,000 OWNERS EQUITY
Less: Accum. depr. 6,500 23,500 Gabriel Liwayway, capital 76,100
Total liabilities and
Total assets P82,500 owners equity P82,500

Test Material 9-3

 Measuring Business Income: The Adjusting Process 11

Requirement (1)

Lorenzo Anicete, Attorney

Preparation of Adjusted Trial Balance
July 31, 2008

Trial Balance Adjustments Adjusted Trial Balance

Account Title Debit Credit Debit Credit Debit Credit
Cash P 29,200 29,600
Accounts Receivable 23,200 (a) 1,800 25,000
Prepaid Rent 7,200 (b) 1,800* 5,400
Supplies 1,600 (c) 800 800
Furniture 33,600 33,600
Accumulated Depreciation P 7,000 (d) 700** 7,700
Accounts Payable 6,700 6,900
Salary Payable (e) 400*** 400
Lorenzo Anicete, Capital 77,300 77,300
Lorenzo Anicete, Drawing 8,000 8,000
Legal Service Revenue 17,500 (a) 1,800 19,300
Salary Expense 4,800 (e) 400*** 5,200
Rent Expense (b) 1,800* 1,800
Utilities Expense 1,100 1,100
Depreciation Expense (d) 700** 700
Supplies Expense (c) 800 800
P108,700 P108,700 5,500 5,500 111,600 111,600

_____
* P7,200 4 = P1,800
** P33,600 4 = P8,400 12 = P700
*** P2,000 5 = P400

Requirement (2)
12 Chapter 9

Lorenzo Anicete, Attorney

Income Statement
For the Month Ended July 31, 2007
Revenues:
Legal service revenue P19,300
Expenses:
Salary expense P5,200
Rent expense 1,800
Utilities expense 1,100
Supplies expense 800
Depreciation expense 700
Total expenses 9,600
Net income P 9,700

Lorenzo Anicete, Attorney

Statement of Owners Equity
For the Month Ended July 31, 2007
Lorenzo Anicete, capital, July 31, 2007 P77,300
Add: Net income 9,700
87,000
Less: Withdrawals 8,000
Lorenzo Anicete, capital, July 31, 2007 P79,000

Lorenzo Anicete, Attorney

Balance Sheet
July 31, 2007
ASSETS LIABILITIES

Cash P29,200 Accounts payable P 6,900

Accounts receivable 25,000 Salary payable 400
Prepaid rent 5,400 Total liabilities P 7,300
Supplies 800
Furniture P33,600 OWNERS EQUITY
Less: Accum. depr. 7,700 25,900 Lorenzo Anicete, capital 79,000
Total liabilities and
Total assets P86,300 owners equity P86,300