Property Management Professionals provides building management services to owners of officebuildings and shopping centers. The company closes its accounts at the end of the calendar year.The manner in which the company has recorded several transactions occurring during 2011 isdescribed as follows: a. On September 1, received advance payment from a shopping center for property manage-ment services to be performed over the three-month period beginning September 1. The entire amount received was credited directly to a revenue account.b. On December 1, received advance payment from the same customer described in part a forservices to be rendered over the three-month period beginning December 1. This time, theentire amount received was credited to an unearned revenue account.c. Rendered management services for many customers in December. Normal procedure is torecord revenue on the date the customer is billed, which is early in the month after the serviceshave been rendered.d. On December 15, made full payment for a one-year insurance policy that goes into effect onJanuary 2, 2012. The cost of the policy was debited to Unexpired Insurance.e. Numerous purchases of equipment were debited to asset accounts, rather than to expenseaccounts.f. Payroll expense is recorded when employees are paid. Payday for the last two weeks ofDecember falls on January 2, 2012.InstructionsFor each item above, explain whether an adjusting entry is needed at December 31, 2011 , andstate the reasons for your answer. If you recommend an adjusting entry, explain the effects thisentry would have on assets, liabilities, owners’ equity, revenue, and expenses in the 2011 financialstatements.
Property Management Professionals provides building management services to owners of office
buildings and shopping centers. The company closes its accounts at the end of the calendar year.
The manner in which the company has recorded several transactions occurring during 2011 is
described as follows:
a. On September 1, received advance payment from a shopping center for property manage-
ment services to be performed over the three-month period beginning September 1. The entire
amount received was credited directly to a revenue account.
b. On December 1, received advance payment from the same customer described in part a for
services to be rendered over the three-month period beginning December 1. This time, the
entire amount received was credited to an unearned revenue account.
c. Rendered management services for many customers in December. Normal procedure is to
record revenue on the date the customer is billed, which is early in the month after the services
have been rendered.
d. On December 15, made full payment for a one-year insurance policy that goes into effect on
January 2, 2012. The cost of the policy was debited to Unexpired Insurance.
e. Numerous purchases of equipment were debited to asset accounts, rather than to expense
accounts.
f. Payroll expense is recorded when employees are paid. Payday for the last two weeks of
December falls on January 2, 2012.
Instructions
For each item above, explain whether an
state the reasons for your answer. If you recommend an adjusting entry, explain the effects this
entry would have on assets, liabilities, owners’ equity, revenue, and expenses in the 2011 financial
statements.
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