ACTBAS1 GROUP BUSINESS CASE

1st Term, Academic Year 2014-2015

Williams, J., Haka, S., Bettner, M., Carcello, J. Lam, N., & Lau, P. (2015)
Financial Accounting, IFRS, 2nd edition, McGraw-Hill Irwin (with modifications)

The Dauntless Fitness Club adjusts its accounts monthly and closes its accounts annually. Club
members pay their annual dues in advance by January 2. The entire amount is initially credited
to Unearned Membership dues. At the end of each month, an appropriate portion of this amount
is credited to Membership Dues Earned. Guests of the club normally pay their fees before being
allowed to use the facilities. The amounts collected are credited to Guest Fee Revenue at the
time of receipt. Certain guests, however, are billed at the end of the month. The following
information is available as a source of preparing adjusting entries at 31 December.

1. Salaries earned by the club’s employees that have not been recorded or paid amount to
P136,000.
2. Several guests used the club facilities on 30 December of the current year. At 31 December,
the P32,000 owed by the guests had not been recorded or billed.
3. Membership dues earned in December, for collections received at the beginning of the year
amount to P140,000.
4. Depreciation of the furniture and fixtures in the club is based on an estimated life of eight
years. These items had originally been purchased for P800,000. The straight-line method
is used.
5. The club building had been rented for a period of five years at an annual amount of P300,000.
At 31 December, no rental payment has been made for the month.
6. A 12-month bank loan in the amount P600,000 had been obtained by the club on October 1.
A 9% note payable was issued for the loan. The entire P600,000, plus all of the interest
accrued over the 12-month life of the loan, is due in full on 30 September of the
upcoming year.
7. A one-year fire insurance policy had been purchased on 30 April. The entire premium of
P45,000 was initially recorded as Unexpired Insurance.
8. In December, the club entered into an agreement to host the annual competition for Biggest
Loser. The club expects to generate guest fees of P388,000 from this event.
9. Unrecorded income taxes expense accrued in December amounts to P126,000. This amount
will not be paid until 22 January.

INSTRUCTIONS:
a. For each of the above numbered paragraph, prepare the necessary adjusting entry. If no
adjusting entry is required, explain why.
b. Identify the type of each adjusting entry prepared in part a above.
c. Indicate the effects that each of the adjustments in part a will have on the following elements
of the club’s financial statements for the month of December. Organize your answer in
tabular form, using the column headings shown below. Use the letters I for increase, D
for decrease and NE for no effect. Adjusting entry no. 1 is provided as an example.
Adjusting entry Income Statement Statement of Financial Position
Revenue- Expenses = Net Income Assets= Liabilities + Equity
No. 1 NE I D NE I D

d. What is the amount of interest expense for the entire current year on the P600,000 bank loan
obtained on October 1?
e. Compute the carrying value of the club’s furniture and fixtures to be reported in the current
year’s 31 December statement of financial position.

Format:

 Letter size bond paper (8-1/2” x 11”)

 1.5 line spacing
 One inch margin in all sides
 Minimum of 2 pages (not including the cover page)
 Font: Arial 12
 Cover page:

GROUP BUSINESS CASE

Presented to the
Accountancy Department
De La Salle University

In partial fulfillment
Of the course requirements
In ACTBAS1 (sec)

Surname, First Name, M.I.

Surname, First Name, M.I.
Surname, First Name, M.I.
(Individually list name of all group members)

Date

Deadline: MW class: August 20, 2014 (Wednesday)

TH class: August 22, 2013 (Thursday)