DEFERRAL PROBLEM SOLVING
1. Red Velvet Company received P 5,000,000 postdated checks from its customers as advance rent for the
lease of its condominiums in Taguig City on August 1, 2022. The contract states that these checks are good
for 1 year of rental. The company uses the liability method in recognizing its revenue. On December 31,
2022, how much is the company’s unearned revenue from these advances?
2. Red Velvet Company received P 5,000,000 postdated checks from its customers as advance rent for the
lease of its condominiums in Taguig City on August 1, 2022. The contract states that these checks are good
for 1 year of rental. The company uses the revenue method in recognizing its revenue. On December 31,
2022, how much is the company’s unearned revenue from these advances?
3. SM Tax Consultancy received P150,000 representing advanced payment for six (6) months tax
compliance and consultancy services from one of their clients on November 1, 2020. The accounting
period of the entity ends on December 31, 2020.
Prepare the initial and adjusting entries for this transaction using the two methods namely, liability
method and revenue method.
4. Wendy Company purchased office supplies on August 1, 2020 amounting to P100,000 in which the
company immediately paid in cash. At December 31, 2020 which coincides to be the end of the accounting
period, inventory records show that the amount of remaining office supplies amount to P40,000.
