Problem - Preparing Adjusting Entries
On November 30, the end of the current fiscal year, the following information is available to assist Allerton Corporation's accountants in making adjusting entries:
a) Allerton's Supplies account shows a beginning balance of $2350. Purchases during the year were $4218. The end-of-year inventory reveals supplies on hand of $1397.
b) The Prepaid Insurance account shows the following on November 30:
Beginning balance - $4,720
July 1 - 4,200
October 1 - 7,272
The beginning balance represents the unexpired portion of a one-year policy purchased in September of the previous year. The July 1 entry represents a new one-year policy, and the October 1 entry represents additional coverage in the form of a three-year policy.
c) The following table contains the cost and annual depreciation for buildings and equipment, all of which Allerton purchased before the current year:
|
Account
|
Cost
|
Annual Depreciation
|
|
Buildings
|
$298,000
|
$16,000
|
|
Equipments
|
374,000
|
40,000
|
On October 1, the company completed negotiations with a client and accepted an advance of $18,600 for services to be performed monthly for a year. The $18,600 was credited to Unearned Services Revenue.
The company calculated that, as of November 30, it had earned $7,000 on an $11,000 contract that would be completed and billed in January.
Among the liabilities of the company is a note payable in the amount of $300,000. On November 30, the accrued interest on this note amounted to $18,000.
On Saturday, December 2, the company, which is on a six-day workweek, will pay its regular employees their weekly wages of $15,000.
On November 29, the company completed negotiations and signed a contract to provide services to a new client at an annual rate of $23,000.
Management estimates income taxes for the year to be $22,000.
REQUIRED -
1. Prepare adjusting entries for each item listed above.
2. Explain how the conditions for revenue recognition are applied to transactions e and h.