Problem #9 PROFESSOR: Preparing Adjusting Entries and an Adjusted Trial Balance Presented below, together with account numbers, is the unadjusted trial balance of Madelyn Rialubin Travel Agency for the year ended Dec. 31, 2021: Madelyn Rialubin Travel Agency Unadjusted Trial Balance Dec. 31, 2021 130 Prepaid Rent 110 Cash 120 Accounts Receivable P 126,000 645,000 140 Office Supplies 150 Furniture 210 Notes Payable 220 Accounts Payable 230 Salaries Payable 240 Interest Payable 360,000 63,000 155 Accumulated Depreciation 2,175,000 P 435,000 285,000 320 310 Rialubin, Capital Rialubin, Withdrawals 410 Travel Revenues 1,680,000 1,200,000 5.133.000 510 Salaries Expense 3,771,000 520 Rent Expense 530 Office Supplies Expense 540 Depreciation Expense 550 Interest Expense 560 Miscellaneous Expense Totals 93,000 P8,433,000 P8,433,000 1 Problem #9 Preparing Adjusting Entries and an Adjusted Information pertaining to Rialubin’s accounts is as follows: a. On Nov. 1, 2021, Rialubin paid Juanita Rabena Realtors P360,000 for six months’ rent on the office building commencing that date. b. Office supplies on hand at Dec. 31, 2021 amounted to P27,000. c. Depreciation expense for the furniture amounted to P75,000 for the year. d. At Dec. 31, 2021, P105,000 salaries have accrued. e. The P900,000 note payable was issued on Oct. 1, 2021. It will be repaid in 12 months together with interest at an annual rate of 24%. Required: 1. Prepare the adjusting entries. 2. Establish a ledger account for each account found in the unadjusted trial balance. Enter the amount found in the unadjusted trial balance into the ledger accounts. Post the adjusting entries. Compute the adjusted balances. Use page number 11 for the journal. 3. Prepare an adjusted trial balance.
The Correct Answer and Explanation is :
Solution:
Step 1: Adjusting Entries
- Prepaid Rent Adjustment
- Rent paid for six months: P360,000
- Rent expense for two months (Nov. and Dec. 2021):
P360,000÷6×2=P120,000P360,000 \div 6 \times 2 = P120,000
Journal Entry:
Rent Expense 120,000 Prepaid Rent 120,000 - Office Supplies Adjustment
- Beginning Office Supplies: P63,000
- Supplies on hand at year-end: P27,000
- Supplies used:
P63,000−P27,000=P36,000P63,000 – P27,000 = P36,000
Journal Entry:
Office Supplies Expense 36,000 Office Supplies 36,000 - Depreciation Expense Adjustment
- Depreciation for furniture: P75,000
Journal Entry:
Depreciation Expense 75,000 Accumulated Depreciation 75,000 - Depreciation for furniture: P75,000
- Salaries Payable Adjustment
- Salaries accrued: P105,000
Journal Entry:
Salaries Expense 105,000 Salaries Payable 105,000 - Salaries accrued: P105,000
- Interest Expense Adjustment
- Note Payable: P900,000
- Annual interest rate: 24%
- Quarterly interest:
P900,000×0.24÷4=P54,000P900,000 \times 0.24 \div 4 = P54,000
Journal Entry:
Interest Expense 54,000 Interest Payable 54,000
Step 2: Ledger Accounts and Posting
Each account in the unadjusted trial balance is updated with the adjustments:
- Prepaid Rent decreases by P120,000.
- Office Supplies decreases by P36,000.
- Depreciation increases accumulated depreciation by P75,000.
- Salaries Payable increases by P105,000.
- Interest Payable increases by P54,000.
The adjusted balances are computed after all postings.
Step 3: Adjusted Trial Balance
| Account | Debit | Credit |
|---|---|---|
| Cash | 645,000 | |
| Accounts Receivable | 126,000 | |
| Prepaid Rent | 240,000 | |
| Office Supplies | 27,000 | |
| Furniture | 2,175,000 | |
| Accumulated Depreciation | 510,000 | |
| Notes Payable | 900,000 | |
| Accounts Payable | 285,000 | |
| Salaries Payable | 105,000 | |
| Interest Payable | 54,000 | |
| Rialubin, Capital | 1,680,000 | |
| Rialubin, Withdrawals | 1,200,000 | |
| Travel Revenues | 5,133,000 | |
| Salaries Expense | 3,876,000 | |
| Rent Expense | 120,000 | |
| Office Supplies Expense | 36,000 | |
| Depreciation Expense | 75,000 | |
| Interest Expense | 54,000 | |
| Miscellaneous Expense | 93,000 | |
| Totals | 8,697,000 | 8,697,000 |
Explanation:
The adjustments ensure that all revenues and expenses are recognized in the correct period. Prepaid rent is reduced for the months used, while supplies expense reflects what was consumed. Depreciation spreads the cost of furniture over its useful life. Salaries and interest are recorded as payable to match the incurred expenses. These adjustments maintain adherence to the accrual accounting principle and enable accurate financial reporting. The adjusted trial balance confirms all debits and credits are equal, ensuring accuracy before preparing financial statements.