Acai Chapter 17 Questionnaires

EXERCISES AND PROBLEMS
Exercises
Exercise 1: Prepaid Rent

On December 1, 20X7, Rhan Corporation leased office space for 5 yrs at a month rental of
P10,000. On that date, Rhan paid the lessor the following amounts:
Rent security deposit P 25,000
First month’s rent 10,000
Last month’s rent 10,000
Nonrefundable payment (reimburses
lessor for modifications to the leased premises) 60,000
P 105,000
The entire amount of P105,000 was charge to rent expense in 20X7. What portion of the
payments should Rhan have deferred to years subsequent to 20X7?
a. 35,000
b. 85,000
c. 94,000
d. 95,000
Exercise 2: Deferred Pension Cost

Brown Company adopted a noncontributory pension plan on January 1, 20X7. Brown decided to
amortize the past service cost over 15 years and to fund this cost by making equal payments to
the fund trustee at the end of each of the first ten years. The normal pension cost is also funded
fully at the end of each year. The following pension plan data are available for 20x7:
Normal pension cost P80,000
Past service cost:
Amortized 46,700
Funded 59,600
In ts December 31, 20x7, a statement of financial position, Brown should report deferred pension
cost at
a. 12,900
b. 20,400
c. 46,700
d. 59,600
Exercise 3: Discount on Bonds Payable

On January 1, 20x1, Hansen, Inc., issued for P939,000, one thousand units of its 9%, P1,000
bonds. The bonds were issued to yield 10%. The bonds are dated January 1, 20x1, and mature on
December 31, 20x6. Hansen uses the interest method of amortizing bond discount. In its
December 31, 20x1, statement of financial position, Hansen should report, unamortized bond
discount of
a. 57,100
b. 54,900
c. 51,610
d. 51,000
Exercise 4: Prepaid Rent

On July 1, 20x7, Walton Co. leased office premises for a 3-year period at an annual rental of
36,000 payable on July 1 each year. The first rent payment was made July 1, 2017. Additionally
on July 1, 20x7, Walton paid P24,000 as a lease bonus to obtain a 3-year lease instead of the
lessor’s usual lease term of six years. In its December 31, 20x7, statement of financial position,
Walton should report prepaid rent of
a. 18,000
b. 22,000
c. 24,000
d. 38,000
Exercise 5: Adjustments for Prepaid Expenses

Prepare the audit adjustments for the following situation you find in the records of Mabini Inc.,
which closes its accounts December 31, 20x7.
a. December 31, 20x7:
Advertising Expense P12,000
Cash P12,000
Records payment of 20x8 advertising contract.
b. Balance of Office Supplies Expense at 12/31/20x7 P 5,000
Balance of Office Supplies on Hand 12/31/20x7 500
Inventory value of Office Supplies at 12/31/20x7 750
c. June 1, 20x7
Prepaid Insurance P1,800
Cash P1,800
Records payment of 36-month policy for fire loss on inventory
d. Balance of Factory Supplies Expense Account
At 12/31/20x7 P3,300
Physical inventory of factory supplies at 12/31/20x7 P1,100
e. On May 1, 20x7, a three-year subscription to the Professional Journal in the amount of
P1,800 was emailed in but not paid for. Subscription Expense was charged for the entire
amount.
f. On September 1, 20x7, paid 36 months premium of P3,600 on fire and extended coverage
on the building. No amortization of this premium has been recorded to date and the full
amount remains in the Prepaid Insurance account.
g. Signed a 10-year lease for a new warehouse; the closing costs of 12,000 paid on July 1,
20x7, effective date of lease, was charged to Rent Expense.
h. Paid annual dues of P1,200 on September 1, 20x7, to the Chamber of Commerce and
charged Dues and Subscription Expense.
i. Subscribed to Building Reports on April 1, 20x7, agreeing to pay equal semi-annual
installments of P720 each. The first payment was charged to Prepaid Dues and
Subscriptions and the second charge to Dues and Subscriptions Expense.
j. Vacation advances were made in the amount of P6,000 on December 15, 20x7, and
charged to the Vacation Expense. Of this amount 3,000 applies to vacations starting
January 1, 20x8.
Problems
Problem 1: Analysis of Prepaid Insurance

The audit for the year ending December 31,20x3, of the Raven Construction Company revealed
that the present balance of Prepaid Insurance account consisted of the following policies. All
insurance premiums were charged to this account.
*For construction of hospital to ensure that Raven will complete the project.
*Beneficiary is Company.
*Beneficiary is officer’s wife.
Required:
1) Prepare an Insurance Schedule for 12-21-20x3, showing in addition to the above
information, the amount prepaid and the expense for the year.
2) Prepare journal entries to record the proper amount of expense for 20x3 an create the
correct balance of Prepaid Insurance.
Problem 2
As of December 31,20x5, the Insurance Expense account on the records of the Queen Company
has a debit balance of P46,220. A Prepaid Insurance account is not carried; all premium is charged
to expense as they are paid.
Based on the examination of the policies listed in the table below, prepare (a) an insurance schedule
an (b) the adjusting entry or entries to set up the prepaid insurance properly.
Insurance Policy Coverage Policy Expiration Total Coverage Premium

Company No. Date Date
Pioneer Fire and extended, 7-1- 7-1-20x7
101 P 500,000 P 6,480
factory building 20x4
Pioneer Fire and extended, 8-16- 8-16-20x8
102 1,500,000 17,280
Commonwealth Fire and extended, 2-1- 2-1-20x6
103 250,000 3,000
Malayan Fire and extended, 10-1- 10-1-20x7
104 270,000 4,800
AFISCO Fire, merchandise 5-1- 5-1-20x6
105 1,000,000 4,440
20x5
Domestic Comprehensive 8-1- 8-1-20x6
106 150,000 2,400
deliver equipment 20x5
Philam Liability, deliver 8-1- 8-1-20x6 500,000
107 3,600
equipment 20x5 1,000,000
Filipinas Inside theft and 11-1- 11-1-20x8
108 200,000 4,500
burglary 20x5
Bankers Employee Fidelity 3-1- 3-1-20x8 Position –
109 9,000
20x5 P 300,000
Fortune 110 Workmen’s 9-1- 9-1-20x6 Payroll total at
Compensation 20x5 P.25 per P100.
Deposit of P
5,000 made on
9-1-20x5.
Payroll from 9-
1-20x5 to 12-31-
20x5 – P
820,000.

Acai Chapter 17 Questionnaires

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Acai Chapter 17 Questionnaires

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EXERCISES AND PROBLEMS

Exercise 1: Prepaid Rent

Exercise 2: Deferred Pension Cost

Exercise 3: Discount on Bonds Payable

Exercise 4: Prepaid Rent

Exercise 5: Adjustments for Prepaid Expenses

Problem 1: Analysis of Prepaid Insurance

Insurance Policy Coverage Policy Expiration Total Coverage Premium

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