ACCOUNTING EXERCISES

Exercise 4-1
Quick Company paid P 25,920 premium on a three-year insurance policy on September 1, 2019.
The effectivity of the policy begins on September 1, 2019.
1. Assuming the cash basis of accounting, how much of the premium will appear as an expense on
the annual statement of comprehensive income for year 2019? For 2020? For 2021? For 2022?
2. Assuming the cash basis, how much of the premium will appear as an asset on each December
31 statement of financial position for the year 2019? For 2020? For 2021? For 2022?
3. Assuming the accrual basis of accounting, how much of the premium will appear as an expense
on the annual statement of comprehensive income for the year 2019? For 2020? For 2021? For
2022?
4. Assuming the accrual basis, how much of the premium will appear as an asset on each December
31 statement of financial position for the year 2019? For 2020? For 2021? For 2022?
Use the following table. Use the space provided for the supporting computations in good form.
2019 2020 2021 2022
1.

2.

3.

4.

Exercise 4- 2
Determine the amounts indicated by question marks in the columns below. Consider each column
a separate problem. Make the adjusting entry for column (a) assuming supplies purchased are
debited to an asset account.
(a) (b) (c) (d)
Supplies on hand, August 1 P 264 P434 P 196 ?
Supplies purchase during the month 54 ? 174 1,928
Supplies consumed during the month 194 972 ? 1,632
Supplies remaining on August 31 ? 436 56 1,188
Exercise 4-3
Classify the following items as (a) deferred expense (prepaid expense), (b) deferred revenue
(unearned revenue), (c) accrued expense (accrued liability), or (d) accrued revenue (accrued asset).
Use CAPITAL LETTERS.
____________ 1. A two-year premium paid on a fire insurance policy
____________ 2. Electric bill owed but not yet paid
____________ 3. Office Supplies on hand
____________ 4. Wages owed but not yet paid
____________ 5. Telephone bill owed but payable in the following period
____________ 6. Subscriptions collected in advance by a newspaper publisher
____________ 7. Service Revenue collected but not yet earned
____________ 8. Service Revenue already earned but not yet received
____________ 9. Interest paid in advance from a bank loan
____________ 10. Rent received in advance
____________ 11. Services rendered but not yet collected
____________ 12. Advertising contract paid in advance for one year
____________ 13. Income collected but not yet earned
____________ 14. Rent paid in advance
____________ 15. Interest collected in advance by the creditor
Exercise 4-4
The Supplies and Supplies Expense accounts at December 31, after adjusting entries have been
posted at the end of the first year of operations, are shown in the T-accounts below:
Supplies Supplies Expenses
Bal. 2,090 Bal. 9,715

Determine the amount of supplies purchased during the year. ____________

b. If the cash basis rather than the accrual basis had been used, would an adjusting entry have
been necessary? Explain.
Exercise 4-7
Prepare the adjusting entries on December 31, 2019, the end of the annual accounting period, on
the following independent data. Show your computations after each entry.
1. The Insurance Expense account had a debit balance on December 31, 2019, of P 36,000
representing premium for a 2-year fire insurance policy effective October 1, 2019.
2. Rent Income was credited for P 18,000 on November 1, 2019, representing nine months’ rent
collected in advance.
3. Equipment per general ledger on December 31, 2019, shows a balance of P 372,000. Equipment
acquired during the year was P 52,000 on April 1, 2019. All equipment is to be depreciated at the
rate of 25% per annum.
4. As of December 31, 2019, commissions already earned but not yet collected amounted to P
48,000.
5. Office Supplies costing P 9,000 bought during the period was debited to the Office Supplies
account. Of the amount, P 5,000 were consumed during the year.
6. Unearned Service Fees account showed a credit balance of P 80,000 per general ledger on
December 31. Of this, 40% had been actually earned during the period.
7. On December 31, 2019, a 90-day, 9% Notes Payable has a balance of P 120,000 per general
ledger. The note was issued on December 5, 2019. No interest has been taken on this note.
8. Unearned service revenue has a balance of P 400,000 of which 60% has been earned.
9. Notes Receivable has a balance of P 100,000 received from a client in settlement of an open
account on November 16, 2019. The note is a 90-day, 12% note. No interest has been taken on this
note.
10. The Prepaid Insurance account has balance of P 210,000 on December 31, 2019. The balance
represented two fire insurance policies acquired during 2019. The first policy, Policy I for P
120,000 was acquired on March 1, 2019, and the second policy, Policy II was acquired on August
1, 2019, for P 90,000. Policy I is payment for a 2-year plan while Policy II is for a one-year plan.
EXERCISE 4-8: Classification of Adjusting Entries
INSTRUCTION: Classify the following transaction as:
a. Accrued revenue c. Prepaid expenses
b. Accrued expense d. Unearned revenue
1. Interest paid in advance at the time the note was discounted at the bank.
2. Property taxes paid in advance.
3. Commission income received in advance.
4. Rent received in advance in property owned.
5. Life insurance premiums received by an insurance company.
6. Supplies on hand.
7. Unpaid salaries to employees.
8. Portion of fee earned by CPA but not due until completion of an audit.
9. Interest earned but not yet received.
10. Taxes owed but payable in the following month.
11. Subscription collected in advance by a publisher.
12. Receipts from sale of meal tickets by a restaurant.
13. Interest owed but not yet due.
14. A three-year premium paid on fire insurance policy.
15. Salary owed but not yet due.
16. Uncollected service income.
17. Accrued interest on notes payable.
18. Paid advertising expenses for the quarter.
19. Collected two months deposit and one month advance on rental of apartment.
20. Unrecorded interest on notes receivable.
EXERCISE 4-9: Preparation of Adjusting Entries
INSTRUCTION: Only one-half of each adjusting entry has been shown in a journal form.
Complete the journal entry.
2020
Nov.
1. Interest Income is credited.
2. Doubtful account expense is debited.
3. Commission income is debited.
4. Accumulated depreciation is credited.
5. Utilities expense is debited.
6. Service income is credited.
7. Prepaid rent is credited.
8. Rent receivable is debited.
9. Office supplies are debited.
10. Allowance for doubtful accounts is
debited.
11. Salaries payable is credited.
12. Unearned rent is debited.
13. Depreciation expense is debited.
14. Wages expense is debited.
15. Prepaid insurance is credited.
16. Interest expense is debited.
17. Interest receivable is debited.
18. Unearned commission is credited.
19. Rent expense is credited.
20. Unearned interest is credited.