Del Mundo Landscape Specialist recorded various transactions in November related to starting their business. This included an initial investment of P450,000, rent paid in advance of P21,000, and purchasing a truck for P300,000 by paying P200,000 cash and signing a P100,000 note. Revenues were earned from services provided and some expenses like salaries and supplies were incurred and paid. Adjusting entries were made at month end for items like depreciation, prepaid rent, and accrued salaries.
Del Mundo Landscape Specialist recorded various transactions in November related to starting their business. This included an initial investment of P450,000, rent paid in advance of P21,000, and purchasing a truck for P300,000 by paying P200,000 cash and signing a P100,000 note. Revenues were earned from services provided and some expenses like salaries and supplies were incurred and paid. Adjusting entries were made at month end for items like depreciation, prepaid rent, and accrued salaries.
Del Mundo Landscape Specialist recorded various transactions in November related to starting their business. This included an initial investment of P450,000, rent paid in advance of P21,000, and purchasing a truck for P300,000 by paying P200,000 cash and signing a P100,000 note. Revenues were earned from services provided and some expenses like salaries and supplies were incurred and paid. Adjusting entries were made at month end for items like depreciation, prepaid rent, and accrued salaries.
Del Mundo Landscape Specialist recorded various transactions in November related to starting their business. This included an initial investment of P450,000, rent paid in advance of P21,000, and purchasing a truck for P300,000 by paying P200,000 cash and signing a P100,000 note. Revenues were earned from services provided and some expenses like salaries and supplies were incurred and paid. Adjusting entries were made at month end for items like depreciation, prepaid rent, and accrued salaries.
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Initial Investment
Nov 1 The owner of Del Mundo Landscape Specialist, Galicano Del Mundo, invests P 450,000 to open the business.
Rent Paid in Advance
Nov. 1 Rented office space and paid three months' rent in advance, P21,000. Given the length of time i.e., more than a month, that this contract is in effect, the matching principle requirest that the contract's cost initially be recorded as an asset since it provides a future benefit.
Vehicle Acquired by Issuing a Note
Nov 2 Del Mundo purchases a P300,000 used truck by paying P200,000 in cash and signing a P100,000 note payable which is due in eighteen months.
Equipment Acquired for Cash
Nov 3 Del Mundo purchases mechanical lawn mowers for P54,000 in cash.
Expenses Incurred and Paid
Nov. 4 Del Mundo purchases P1,500 worth of gasoline.
Insurance Premiums Paid
Nov. 5 Del Mundo pays P24,000 for a one-year insurance contract that protects his business from Nov. 1 until Oct. 31 of the following year.
Supplies Purchased on Account
Nov. 8 Del mundo purchases P1,000 worth of supplies, placing the purchase on his account with the store rather than paying cash. Supplies are a prepaid expense (an asset) until they are used and thereby become a cost of doing business (an expense). Accounts payable differ from notes payable. Accounts payable are amounts the entity owes based on the good credit of the entity of the owner, whereas notes payable are amounts the entity owes under formal obligations.
Revenues Earned and Cash Collected
Nov. 14 The Del Mundo Landscape Specialist cuts grass for seven customers, receiving P2,500 from each.
Unearned Revenues Collected
Nov. 20 Del Mundo receives P13,500 from a customer for a six future maintenance visits. An advance deposit from a customer is an obligation to perform work in the future. It is a liability until the work is performed, at which time it becomes revenue. Therefore the advance depost is called unearned revenues.
Revenues Earned on Account
Nov. 22 Del Mundo Landscape Specialist cuts grass for eight customers, billing each one P2,500 but receiving no cash. In accordance with the revenue recognition principle, revenue is recognized upon the completion of a service or the delivery of a product, even if no cash changes hands at that time.
Salaries Paid Nov. 26 Del Mundo pays P4,000 in salaries to a part-time employee.
Advertising Paid Nov. 28 Del Mundo pays P1,750 to print advertising fliers.
Withdrawal of Cash by Owner
Nov. 29 Del Mundo withdraws P5,000 for personal use.
Accounts Receivable Partially Collected
Nov. 30 Five of the eight customers billed last Nov. 22 each pay P2,500 Debit Credit
Supplies 1,000 Accounts Payable 1,000 Purchased supplies on account.
Cash 17,500 Revenue 17,500 Rendered services.
Cash 13,500 Unearned Revenue 13,500 Collected advance from customer.
Accounts Receivable 20,000
Revenue 20,000 Rendered services on account.
Salaries Expense 4,000
Cash 4,000 Paid salaries.
Advertising Expense 1,750
Cash 1,750 Paid advertising expense
Withdrawals 5,000 Cash 5,000 Withdrawals from owner
Cash 12,500 Accounts Receivable 12,500 Collected payment from customers 925,750.00 925,750.00 Illustration: The ledger accounts of Fel Mundo Landscape Specialist after posting ate show below. The accoount numbers and journal reference columns are purposely omitted. The balance of each account has been determined.
ed Revenue 13,500 13,500 Prepaid Rent (Adjustment a). Del Mundo makes and adjusting enrty to record the expiration of the month of the three months' advance rent paid on Nov. 1.
Prepaid Insurance (Adjustment. b). Del Mundo record the expiration of the one-twelfth of the entity's one-year insurance policy taken last Nov. 5
Supplies (Adjusment c). Del Mundo discovers that he used P500 worth of supplies during November. He makes the necessary adjusting entry.
Vehicle and Equipment (Adjs. d and e). Del Mundo bought a truck and lawn mowers last Nov. 2 and 3, respectively. Del Mundo allocates a full month's depreciation for property and equipment bought on or before the 15th day of the month; otherwise, it is half-month's depreciation. It is estimated that the truck will have a useful life of five years and a salvage value of P30,000, while lawn mowers, four-and-a-half years useful life without salvage value. Del Mundo the computes that depreciation expenses for the truck as P4,500 a month [(P300,000 - P30,000) / 60months] and for the lawnmowers, 1,000 (54,000/54 months).
Unearned Referral Revenues (Adj. f). On Nov. 20, Del Mundo received a P13,500 prepayment for six future visits. Since Del Mundo completed one of these visits in November, he makes an adjusting entry reflect this.
Accrued Salaries (Adj. g). Del Mundo records an expense for the salaries of his part-time employee who earned P1,600 during the last four days of November but will not be paid until Dec. 10.
Accrued Interest (Adj. h) Del Mundo's P100,000 note payable, which he signed on Nov. 2, carries an 18% interest rate. Del Mundo uses the formula (for simple interest) below to calculate how much interest expense accrued during the final twenty-eight days of November.
Accrued Lawn Cutting Revenues (Adj. i). During the afternoon of Nov. 30, Del Mundo cuts one lawn, and he agrees to mail the customer a bill for P2,500 which he does on Dec. 2. Del Mundo makes an adjusting entry in accordance with the revenue recognition principle. DR CR Rent Expense 7,000 Prepaid Rent 7,000
Additional Information: a. Office supplies on hand as at Dec. 31, 2019 is P21,000. b. One-third of the unearned survey revenyes has been earned as at Dec. 31, 2019. c. Depreciation for the year amounted to P38,000 for the building and P123,000 for the equipment. d. Salaries in the amount of P14,000 have accrued at year-end. e. The notes receivable were accepted from several customers. The notes were issued on Sept. 1, 2019 and will be settled together with a 20% interest on May 31,2020.
Prepare the necessary adjustments and adjusted Trial Balance
