Fundamentals of Accountancy, Business, and Management 1 Business Transactions and Their Analysis as Applied to the Accounting Cycle of a Service Business Performance Standards The learners shall be able to ident types of busi nd non credit, an The learners shall be able to + describe the nature of transactions in a service business ABM_FABM11-Wvard.29 + record vansactions of a service business in the general journal ‘ABM_FABNI11-IVad30 + posts transactions in the ledger ABM_FABM11.1Va-d-31 + prepare = tral balance ABM_FABM111Va-d-32 es ABM_FABM114Va-d-33 inting cycle ABM_FABM11-1Va-d-34 + prepare adjusting recite the rules of debit and LESSON OUTLINE nmunicating learning objectives 30 Review types Introduction Motivation Examples of Service Businesses fi Instruction D 85 Practice” Probiem Sets 80 Enrichment s (0.d), Retrieved from betp/ Vchart-of accounts overview from http// ycle. (n.d), Retriew ropedia.com/terms/a Valencia, et.al. 2010) ounting Principles 10th edINTRODUCTION (30 MINS) Commu wglearning objectives Introduce the following learning objectives: | willbe able to give examples of transactions in a service business | willbe able to record the wansactions of a service business in the general joumal | willbe able to post transactions from the general journal to the general ledger. | willbe able to prepare a tial balance. | willbe able to prepare adjusting entries [willbe able to explain the accounting cycle ofa service business Review of previous topics sh how the accounting cycle and ask learners what they have retained from the previous chapter ‘THE ACCOUNTING CYCLE Review the frst four steps in the accounting cycle that were previously discussed, ‘Step 1- Transactions and/or Events: Idantiication and measurement of external transactions and) inteznal events ‘Stop 2 - Preparation of Journal Entries (Journalization): usinoss tansactione aio recorded! the journals using debits and credits ‘Step 3 - Posting: Posting of journal entries to general ledgers. ‘Stop 4 - Unadjusted Trial Balance: Preparation of unadjusted wal balance ‘Teacher tip This continuation of the previous chaste review af the danny on the previous chapter snecostary ‘Teacher tip The teacher may ak the lest draw the sccourtg eye. rather han posting ocean corest he drawing of teMOTIVATION (5 MINS) Examples of Service Businesses ‘Ask a learner to give examples of a service business, Acknowledge all posible answers and correct them if necessary. Get one example ofa service business from those enumerated by the leaner, Ask the learners to imagine the possible transactions that may occur in that particular business. Relate the ansivers of the learners to the subject matter ofthis chapter, INSTRUCTION (485 MIN) Discuss Steps to & ofthe Accounting Cycle (reransctors }s{ 2 souratenmies Jf a.tosing — ;o{ a.tiatoaince ) 8. Closing the Books ‘Stop 5- Workshost This steps simply about plotting the items in the unadjusted wal balance on the worksheet, In a manual accounting system, a worksheet isa large columnar sheet of paper specifically designed to conveniently arrange all the accounting information required at the end ofa period, The worksheet is sed to check whether ledger accounts ae balanced and adjusted. The satisfactory completion of a worksheet provides assurance that all the details ofthe enc-af-pariad accourting procedures were properly brought together. The worksheet serves asthe source in the preparation of financial statements and other closing and adjusting enwies, The body ofthe worksheet contains five pairs of money calumns. A sample of a worksheet is shawn below: ‘Teacher tip conepiece T2ealurn wrlahect fom soca ‘hool ape stare. The teacher wl chen rly copy the corm heading ms Fre tothe leomer ‘Teacher tip Retin the scsounting dle onthe board wall whie each sep i beng cused ‘Teacher tip Ta luaate Figure 1, the teacher may buy one-piece 1Zclunn wrkahee fom local ‘col nuppe str. The teacher wl hen “mpl copy he column headings n Fue ‘ont the worksheet Show the worksheet, tothe eseName of the Company Worksheet For tre peroa montyiyeat ended Unachusted Wal Adjustments 20. Balance DR cRRR statement of Financial Position Accounts lcasn accounts Receivable ventory orice Equipment Jaccum Depen - of Eqpt Lana oxangibieAssots accounts Payable Jowners, capital owners, withdranal income Statement Accounts sales sales Returns and lowances sales Discounts Purchases Purchase Retwns end Allowances Purchase Discounts Freighe n solaies Excense: supplies Expense sities Expense Tacjsted Wal ® DR cr Siatement of come Statement oF br cR DR aRRecall our example in Chapter 10, about Pedro Matapang who stared his Matapang Computer Repairs business on February 14, 2016, The following transactions vanapired in February 2016: 1. February 14, 2016 - Pedro Matapang invested PHP200,000 into his Matapang Computer Repair business. 2. February 15, 2016 - Pedro purchased one computer unit from XY Computer Store to be used for his business. He issued check ‘number 001 amounting to PHP25,000. 3, February 16, 2016 - Pedro hired Juana Magaling, an ‘experienced secretary 4. February 17, 2016 Repsited the computer of Jean and collected PHP 10,000. 5. February 18, 2016 — Repsired the computer of Mike; however, ‘Mike will pay PHP1S,000 only on March 18, 2016 6. February 19, 2016 Pedro purchased Office Supplies from MM ‘Merchancise amaunting to PHPS,000 on account. Pedro will pay this on March 30, 2016, 7. February 25, 2016 Paid the salary of Juana amounting to PHP4,000, The entries to record the above transactions are on the right: General Journal ‘Account Tle a Explanation anaes Cash 200 000] Matapang, Capital 00,000] To record the iil investment of owner P Metapang isis (fice Equipment 25,000| cash 25,000 To recor the purchase off computer une 2am cash Seniee Revenue 10,000| 10,000 To vecord receipt of cash tom customer ens ‘Accounts Receivable 15,000 Service Revenue 15,000 Teo vecora services rendered @ customer on account 2nens ‘Supplies Expense 5,000 ‘Accounts Payable To record purchace of office supplies on ‘count 5,000 225/16 Solaris Exponse 4,000 cash 4,000 To record payment of salary of JuanaRecall that after posting to the general ledge, the unadjusted tral balance was: [MATAPANG COMPUTER REPAIRS Unadjusted Tal Balance February 29, 2016 ‘Account Title Debit creat Balance Sheet Accounts cash 181,000) Accounts Receivable 15,000) tice Equipment 25,000) [accounts Payable 5,000 Matapang, Capital 200,000] incame Statement Accounts Service Revenue 25,000] Supplies Expense ‘5000 Soles Excense “4000 730,000) 230,000] ‘This now represents the fst wo money columns in the worksheet Step 6 Adjusting Entries ‘Atthe end of the accounting period, some accounts in the general ladger would require updating, The journal enties that bring the accounts up to date are called adlusting entries. One purpose of adjusting entries is for income and expenses to be reported in the correct peried, ‘Adjusting entries eneure that both the revanue recognition and matching principles are fallowed, Prior to your lecture, recall the previous discussion on accounting principles and concepts, specifically the matching principle. Wacher tp The busses of Pedro Matapang willbe te teaughout the dacunzon of thir ‘Sect rater so that he tscher wil fia suey to trace the rnanctone and complete the secountng eye of asenice businesRevenue Recognition - accounting standards require that revenue is recognized when it's eamed and the amount can be measured reliably, To illustrate: ‘© Assume that you are preparing the financial statements for Feb 2016, Matapang Computer Repairs rendered services amounting to PHP25,000 forthe repair ofthe computer units of Mr Tamad on Feb 26, 2016, However, the payment for these services of Matapang will be made on Mar 15, 2016. Question: when should you recognize the PHP25,000 aé revenue or income, in Febuary or March? Applying the revenue recognition principle, it should be reported as revenue for February 2016 ‘© Assume that you are preparing the nancial statements for February 2016. On February 28, 2016, Matapang Repairs received payment fiom Mr. Tamad amounting to FHP25,000. This payment is forthe repair ofthe computer units of Mr. Tamad on March 5, 2016, Question: when should you recegrize the PHP25,000 as revenue or income, in February or March? Applying the revenue recognition principle, it should be reported as revenue in March 2016, Take note that since the sevice willbe renclered in March, the revenue should also be eared in March, What about February 2016? The amount is wocorded a8 a liability bacause Matapang Repair has the ebligaton to render ths service in the future, ‘Matching Principle - ths prince directs a business to report an expense on is income statement within the same period as its related income. To illustrate: ‘= Assume that you are preparing the financial statements for Febuary 2076. The business gives @ commission of 10% service income to its employees. The commission ie paid the fllawing month. On February 2016, the total sevice income for the month is PHP100,000. Thus, the employees are entitle to a commission of PHP10,000, This amount will be paid on March 12, 2016. Question: when should the commission expense be recorced in the bbook of accounts of the business, in March orin February? Applying the matching principle, the answer isin February ‘Adjusting entries are made atthe end of each accounting period. Adjusting entties make it possible to report correct ‘amounts on the statement of financial position and on tha income statement. All adjusting entrias affect at least one: income statement account and one statement of financial postion account. Thus, an adjusting entry will alvays involve an incame or an expense account and an asset ora iabilty account, There are five basc sources of adjusting enties: Depreciation expense Deferred expenses or prepaid expenses Deferred Income or uneamed income Accrued expenses or accrue liabilities Accrued income ar accrued aezets Teacher tip The revena recognition and ratching principe Scossedn ABM T Chepte 6 VAccounting Concept and Prnepies)#1 Depreciation. Depreciation isa method of allocating the cast ofan asset to an expense aver the ‘accounting periods that make up the asset's useful life. Examples of assets subject to depreciation are Store, Office, Building, and Transportation equipment. These types of ascee lose their ability to provide seul service a time passes. Depreciation can also be referred to as the decrease in the usefuiness of, these types of assets Take note that Land isnot subject to depreciation because the value of land mostly increases as time passes. Exercise on Adjusting entries to record Depreciation Recall that Matapang accuired office equipment on Febuary 15, 2016 forhis repair shop business. The cost of the equipment is PHP25,000. Ir was estimated to have a useful ife of five yaars. Iris estimated that after five years, the ofice equipment can be sold ata scrap vaiue of PHP1,000, The company uses the straight line method of deprecation, Depreciation is a means of allocating the cost of an asset to an expense over the accounting period that will Benefit the uso ofthe asst. In the exercise above, the equipment wil be used by Matapang for five years. Proper accounting procedures dictates thatthe cost of PHP25,000 should be spread over five years There are several methods or formulas to compute the amount of depreciation. The simplest i the straight line method. The formula is Annual Depreciation: (Acquistion Cost ~ Salvage or Residual Value) / Useful Life. Applying this formula to the exercise: ‘Annual Depreciation ~ (25,000-1,000) /5 = PHP4,800 If the accounting period being reported by Matapang is for the month ending February 29, 2016, the adjusting entry to record this depreciation in the books of Matapang is ‘General Journal ate ‘Account Tle en Explantion Ret | Dobe creat 2/29/16 [Depreciation Expense 00) ‘Accumulated Depredation-Office Eqpt 200] ‘The depreciation expense of PHP200 was derived by computing the monthly depredation of PHP#O0 (Annual Depreciation of PHP4,£00/12 monthe) and multiplying the PHP400 by one-half since the equipment was acquired in the middle of February. ‘Teacher tip Aske learners whats the ent 10 eco the sequin ofthe voice ‘nse Tatsponatian Ego - 50,000 (Cas r Accounts Payable - 50,000, Teacher tip There re other method of depreciation, butataght ineiethe singles and easiest to apy Tete learners that re other ‘leprecaion methods wil be Sacised in her accounting sons,#2 Deferred Expenses or Prepaid Expenses. These ave items that have been initially wecoided as assets but are expected to become expenses overtime or through the operations of the business. Exercise - Adjusting entries to record deferred expenses or prepaid expenses Recall that on February 19, 2016 Matapang purchased PHPS,000 worth of office supplies on account By the end of the month, PHP2,000 worth ofthese supplies are still unused) ‘The February 19, 2016 entry to record the purchase on the account of office supplies was already posted to the general ledger and included in the balances, as showin in the unadjusted wal balance above. The entry was shown only frillutration purposes, ‘Gene-al vournal Dae ‘Account Te and Explanation ot | Dobie erst ZIG [Supplies Expense 5,00 ‘Accounts Payable 000] To record the purchased office supplies on account 229/16 | Supplies 2,000 Supplies Expense 2,000 ‘To setup the value of unused supplies ‘The “Supplies” account debited an February 29, 2016 above lean asset account and represents the value of supplies unused as ofthe end of February 2016, If these journal entries are posted to the ‘general ledger, the following should be the balance of each account “account Tile Debit Grea supplies 2,000 accounts Payable 5,009 supplies Exoense 3.000 ‘Teacher tip Inhigher seanntng bec, hs epprosch is velored to asthe expanse method of inl ued to veard the wantin, ‘Teacher tip Inngher accountng subjacs, his aperoach istered to ethe suet method oh recording where the asset accounts Intl ued to record the waren.The alternative envies to racord the above vansactions are: ‘General Journal Date ‘Account Tle and Explanation Ref | Dobie creat 21916 [Supplies 3/000 Accounts Payable 5,000 ‘To recor the purchased of afc supplies 209716 | Supplies Expense 3,000 Supplies 3,000 To set up the value of unused supples If these enties are posted in the general ledger, the following should be the balances of each account: suppor accounts Payable supplies Expense ecount Tile ‘Dab Crea 2,000 5,009 3000 [Notice that even with the different approaches in recording the wansactions in fre journal entries, the balancesin the general ledger will alvays be the same whether you used the fist approach or the s9condl approach{#3 Deferred Income or Unearned Income. These ae items that have been intaly recorded! as liabilites bur are expected to become income overtime or through the operations of the business. Exercise ~ Adjusting entries to record deferred or unearned income On February 15, 2016 Matapang entered into a contract with Makisig to maintain the computers of ‘Makiig fortwo months starting on February 15, 2014 up to April 15, 2016. On the same date, Makisig paid the total contract amount of PHP40,000 in fl The entries to record and adjust the books av: In the February 29, 2016 enty above, a of end of February 2016, Matapang has already earned the service event for the fst 15 days, thus an adjusting entry is recorded, ‘General Journal Date ‘count Tie ond Explanation Ret | Dobie creat 2itsté (Cash 40,000) seamed Senize Revenue $0,000] ‘To record receipt of fll payment forthe bie-month ‘semice contract wth Makisg DIBOTTA _Uneamecl Service Ravanue 10300) ‘Senvie Revenue 10300] ‘Ta record sence Income earnad from Fab 15.29, 2014; P40,000 x (1/2 manth/2 months) #4 Accrued Expenses or Accrued Liabilities, These aie items of expenses that have been ineurted buthave nat been recorded and paid, Exercize ~ Adjusting entries to record Accrued expenses or accrued liabilities (On February 29, 2016, Matapang received the elecvc bill forthe month of February amounting to PHP3,800, Matapang will pay this ill on March 2016. The electric bill epresents the cost of electricity used (or incurred) for February. Although the said bill is sill unpaid and thus was nat recorded, the matching principle and acerual basi of accountng dictates thatthe same should be recorded in February. Otherwise, your expense will be understated and thus the company will be reporting an overstated income (or an erroneous income). Needless to say, ‘erroneous information may lead to wrong decisions, The entry to record the accrual of this expense is ‘Teacher ti The "Uneumad Service Revenue” account wat nat nce inthe Chat of Asounts ilusrated in ABMT Chapter 3 Cypas of Major Accounts) Addonal acount ee maybe aded to ths chart the ned {raenUnearne Service Reventon wl fl Under he lables cassistion, For tie Purposes, aignscsount code 2800 for ‘Teacher tip In his case the eecher may erphasze he talus of generating smut forton ot the users of aezuring information. The rong information may lend trang decsions. Emphasize aso that ane othe reason for jung entail he Correct formation nthe fiancis Inigher accountng tisisconmeny ‘alee oa the sec proce“General Zournal ‘Teacher Date ‘Account Tie and Explanstion Ret | Debit creat In thie the escher may sriphasize the 2125/16 [Utes Expense 3/500 talus of generating smut formation ot ries Payable the user of acnurting information The sls Paya S800) rong information may lend torang ‘dscsons,Emhasae sso that one othe reason for jing entitle the Cerrect formation nthe fiancis Inngher accountng this conmmenly These are income items that have been eamed buthave nat been recorded and paid by the customer, refered oa the secu proces. In shor, these are receivables of the business Exercise ~ Adjusting entries to record accrued income or accrued assets (On February 28, 2016, Matapang repaired the computer of Peco for PHP1S,000. Pedro vas on an ourt- coF-tovn trp so he could not pay Matapang . He told Matapang that he will pay for their services on March 1, 2016 Matapang has already earned the PHP1S,000 but was not paid as of the end of February 2016 Therefore, an income should be properly recognized in February 2016 for this transaction. The entry to Te acxrue the cost oF electri cured Tor the month of Febru #5 Accrued Income or Accrued Assots record this ‘General Journal Date ‘Account Te ona Explanation Ret | Debit creat 2129716 [Accounts Recehabie 75,000) Senvce Income 15,00 Te acetue the cost of elect cured forthe month of Fobra:Enter all adjustments to the workshest: Matapang Computer Repairs Worksheet For the month ending February 29, 2016 Balance Sheet Accounts cach Accounts Receivable supplies orice Equipment Accum. Depm-OF Eat Accounts Payable uiies Payable unearned Senice Revenue Matapang, Capital Income Statement Accounts Service Revenue Supplies Expense Solves Expense ities apace Depreciation Expense ‘Unadjusted Wal Balance Adjustments oR cR DR 221,000 15000 15,000 2.000 25000 5.600 40,000 10,000 200,000 25,000 5000 4000 3.800 20 zoo __270000___—31,000 "Adjusted Tal Balance Position oR 221000 30000 2000 25,000 200 3.800 25,000 2,000 3.000 4000 3.200 20 31,000___299,000 200] 5,000 3,809 30,000 200,000] 0,000 229,000] "Note: The entry To record the receipt of PHP40,000 from Makiaig on February 15, 2016 was reflected in the unadjusted tral Balance columns,Step 7 - Preparation of the Financial Statements, Using the information from the worksheet, the financial statements are prepared. The following are the financial statements to be prepared: 4, Statement of Financial Pestion (SFP) - Also known as the balance sheet. This statement includes the amounts of the company's total assets, labiltes and owner's equity which in totality provides the feancial position ofthe company on specific date 2. ‘Statement of Comprehensive Income (SCI ~ Also known as the income statement. Contains the results of the company’s operations fora specific petiod of time. This can be prepared on a monthly, quarterly or yearly basis, 43. Statement of Changes in Equity (SCE) - This statement is prepared price to preparation of the Statement of Financial Postion in arder to obtain the tending balance of the equity to be used in the SFP All changes, whether increases or decreases tothe ovner’sintareston the company during the petiod, ate reported here. 4. Cash Flow Statement - Provides an analysis of inflows and/or outflows of cath fromvto operating, investing and financing activites, The income statement is prepared frst so that net income can then be recorded in the statement of changes in equity The statement of changes in equity then prepared to determine the ending balance of equity or capital account. Once the tending balance is determined, the statement of financial postion ie prepared. The cash flow statement is prepared last, Based on the worksheet on the right, the income statement of Matapang for February 2016 should appear a8 folios Worksheet Forte rmonth ening Fobra 77, Aaned Wal core Janis Baance Stent oR CR OOR CR Balance Sheet Accounts caer 21.000 |accours Recivabie ‘30,000 Jotie Eaupmert 25000 Jaccim. Depen.OF Eapt 0 |accouresPyaoie sco inasrnae Service Raven s0.000 servos Revenue 0000 soo = 3000 3000) ssisies expenee 000 3000) Depecaon expanie 200 “200 rernane B00 ‘Matapang Computer Repairs Statement of Comprehensive Income Fer the month ended February 29, 2016 SERVICE REVENUE 50,000 LESS: EXPENSES Supplies Expense 3,000 Salaries Expense 4,000 Lule Expense 3,800 Depreciation Expense 200 ‘Total Expanses 13,000 TETINCOVE 39,000Step 8 - Journalize the Closing Journal Entries The income, expense, withdrawal (equity) accounts are called temporary accounts or nominal accounts. They are called temporary because they ‘accumulate the wansactions of only one accounting period. At the end of this accounting period, the changes in owners equity accumulated in these temporary accounts are transferred into the owner's capital account. This process serves two purposes: (1) to update the balance of the ‘owner’ capital and (2) it retums the balance of the temporary accounts to zero, so that they are ready to measure the income, expenses and ravings ofthe next accounting period again, The ovner's capital account and other statement of financial position accounts are referred to as permanent or real accounts because ther balances continue to exist beyond the current accounting petiod. Closing the books isthe process of transferring the balances of the temporary accounts to the ovner’s permanent capital account, The closing journal entries should consist ofthe following ‘© Allof the nominal revenue accounts should be closed to the income summary account by 8 Debit to revenue and a Credit ta income summary. Allof the nominal expense accounts should be closed to the income summary by a Crecit to expense and a Debit to income summary. The balance in the income summary account should now rflact the net income for the accounting period. The next jaurnal antry shauiel clase the income summary account to the equity or capital account. If there isa net profi this entry will be a Debit to income summary and ‘8 Credit to owner’ capital account. ‘© Once the closing journal entries have been entered into the general journal, the information should be posted to the general ledger. When this is accomplished, al of the nominal accounts in the general ledger should have zero balances. To double check on this, we should prepare another tal balance based on the new balances in the general ledger. ive have any nominal accounts with postive balances, 3 mistake was made along the way and will need to be corrected before proceeding to the next accounting period Tillustate ‘General Journal Date ‘Account Te and Explanation Ret | Dobe crea 2.25/16 | Service Reverus 50,000 nncome Summa) 50,000] To close nominal revenue accounts income Summary 11,000 ‘Supplies Expense 3.500 slavies Expense 4.009 ules Expense 3,800 Depreciation Expense 200]After the above entries, the balance for these accaunts a: ‘Supplies Expense | Salaries Expense | Uillties Expense | Depreciation Expense | Revenue Accounts | Income Summary Dept Gea | bebe — Crear | Debt Gea | edt creat | Dede Cea | Debt Creat Prrso0 eHP3,000 | rHpso00 PxPs,oo0 | PHP3.e00 PHes;a00 | rrrzo0 —prir200 | preso,o00 Preso.c00| PHPT1,000 PHPS9,c00 PHPO PHP PHP PHPO PHPO P3900 [Notice thatthe ending balance of the Income Summary Account amounting to PHP39,000 credit represents the net income forthe period of “Matapang, The balance of the Income Summary Account ie then closed to the Capital Account by this ent! General Journal Date ‘Aesount Tl od Expansion Ret | Debit) reat income Summary 39,000 Matapang, Capital 39000] PRACTICE (80 MIN) Exercise1 ‘General ournal Spencer Company has a fiscal yearend of June 30th, | Date ‘Account Til and Explanation Debit | creat The following adjusting journal enties mustbe 730/018 nares expanse prepared in order to bring the accounting records up teres payable PPA {o date forthe preparation of yearend financial Ho acre interest on note payable rough June 30, 2016 statements, Gfa07 16 [Accounts receivable PPI 00 Service revenue PAPI AGO See eee Ho record sence revenue Tor savces unblled at yearend Fees eared but unbilled total PHPT,400. TAT |stats expense TOT Salaries earned by employees of PHP700have not Saris payable 7HP700 been recorded. No accrue sears tough June 20,201. ad debt expense for years PHP9O0. BOTT [Bad debtexpense PRO Each adjustment is journalized (using general joumal [Alowance for daubl accounts PHPFOO fafa ea een "To ecord bad debt expense for the yeacendedl June 30 2016,Exercise 2 (Depreciation) ‘Compute the depreciation expense fr the following inclependent cases. Use the straight line method of depreciation, 1. Pedro Reyes purchased a delivery vehicle on January 1, 2016 amounting to PHP250,000 tis estimated that the vehicle will be useful for 10, years, The vehicle ean be sold for PHP10,000 at the end of it useful life. If the accounting period being reported by Pedra i one (1) year from January ~ December 2016, how much i the depreciation expense? Solution: ‘Anral Depreciation = (Acquisition Cost Salvage or Residual Value) / Useful Life ‘Annual Depreciation = (250,000 -10,000) / 10 2. Pedro Reyes purchased a delivary vehicle on April 1, 2016 amounting to PHP250,000. Its estimated thatthe vehicle will be useful for 10 years, The vehicle can be sold for PHP10,000 atthe end of its useful life. I the accounting period being reported by Pacha i one (1) year from January-December 2016, how much is the depreciation expense? Solution: ‘Annual Depreciation = (Acquisition Cost ~ Salvage or Residual Value) / Useful Life ‘Annual Depreciation = (250,000 10,000) / 10 ‘Acrwual Depreciation = PHP 24,000 Muitily the Annual Depreciation of PHP24,000 to the number of months in used/12, thus 24,000 x (9/12) Where the’ represents the number of month from April so December, Answer = PHP18,000 3. Pedro Reyes purchased a delivery vehicle on January 1, 2016 amounting to PHP250,000. It is estimated thatthe vehicle will be useful for 10 years, The vehicle can be sold for PHP10,000 atthe end of is useful life. Ifthe accounting period being reported by Pedro is one (1) month (Januaty 2016), how much is the depreciation expense for the month? Solution: ‘Annual Depreciation = (Acquisition Cost Salvage or Residual Value) / Useful Life ‘Annual Depreciation = (250,000-10,000) / 10 = P24,000, ‘Answer = PHP24,000 / 12 = PH2,000 for January 2016Exercise 3 For each ofthe following items, write the journal entry fist if one is needled) to record the transactions; and then the adlusting entry, iF any is required, for the end of the accounting year of Ron Car Rental Company on December 31, 2016, ‘On December 1, borrowed PHP300,000 cash from Nation Bank by isuing a promissory note with an interest of 12% per annum payable in 1 three months, Answer eurnal Entry “Adjusting Entry cash 300,000} interest Expense 3,000] Note Payable 200,000) intrest Payable (or Accrued Expense) Computed as 3,000 bin: when 2 promissory not issued suppor. [eononing the nae payable accounted, PHHP300,000 x 125 x(0/12) in the fooler compute rest Pipa xlnerest ate x Tine In the above situation, the amount of interest (On December 1, paid rental for six months Answer beginning December 1, 2016 to May 31, 2017, at PHP3,000 per month 10 be accrued on December 31 Is good for ane month only covering Dec 1 to Dee 31, 2016) eurnal Entry Rentel Expense 18,009] cash 18,009] bin th amen of advance rental paid was frie Jon (23.000/mentn x5 maven Answer: ‘Rajuating Entry sities Expense Unites Payable 5,600 “Aajusting Entry Prepaid Expenses Rereal Expense ine th amount of prepa apancori the 5 month etl sor December 3), 2016 that re rua 207 to May 2017, tue 2,000 permanthx Smarts PISO The PHPIS 000 becomes an eset othe company ae of Bocembor 3, 2016 but il be axonced the flaming scent yea 415,000] 15,009] (On December 31, 2016, received telephone bill forthe month December amounting to PHPS,600. The bill wll be paid on January 2017,