preparing Adjusting entries

p2. 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 $2,350. Purchases during the year were $4,218. The end-of-year inventory reveals supplies on hand of $1,397.

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 pur- chased 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
Equipment	374,000	40,000

 

d.   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.

 

(Continued)

 

 

 

 

 

 

 

 

 

e.    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.

f.    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.

g.   On Saturday, December 2, the company, which is on a six-day workweek, will pay its regular employees their weekly wages of $15,000.

h.   On November 29, the company completed negotiations and signed a contract to pro- vide services to a new client at an annual rate of $23,000.

i.     Management estimates income taxes for the year to be $22,000.

 

 

 

 

 

 

 

 

 

 

 

ReQUIReD

1.    Prepare adjusting entries for each item listed above.

2.    ConCept ▶ Explain how the conditions for revenue recognition are applied to transactions e and h.