Chapter 3, Problem 2P

On November 30, the end of the current fiscal year, the following information is available to assist Allerton Company’s accountants in making adjusting entries:

1. 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.
2. b. The Prepaid Insurance account shows the following on November 30:

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.

1. c. The following table contains the cost and annual depreciation for buildings and equipment, all of which Allerton purchased before the current year:

1. 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.
2. 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.
3. 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.
4. 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.
5. h. 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.

REQUIRED

1. 1. Prepare adjusting entries for each item listed above.
2. 2. CONCEPT ▶ Explain how the conditions for revenue recognition are applied to transactions e and h.