Chapter 3, Problem 3.3AP

Record adjusting entries (LO3-3)

The information necessary for preparing the 2018 year-end adjusting entries for Gamecock Advertising Agency appears below. Gamecock’s fiscal war-end is December 31.

  a.    On July 1, 2018, Gamecock receives $6,000 from a customer for advertising services to be given evenly over the next 10 months. Gamecock credits Deferred Revenue.

  b.    At the beginning of the year, Gamecock’s depreciable equipment has a cost of $28,000, a four-war life, and no salvage value. The equipment is depreciated evenly (straight-line depreciation method) over the four years.

  c.    On May 1, 2018, the company pays $4,800 for a two-year fire and liability insurance policy and debits Prepaid Insurance.

  d.    On September 1, 2018, the company borrows $20,000 from a local bank and signs a note. Principal and interest at 12% will be paid on August 31, 2019.

  c.    At year-end there is a $2,700 debit balance in the Supplies (asset) account. Only $1,000 of supplies remains on hand.

Required:

Record the necessary adjusting entries on December 31, 2018. No prior adjustments have been made during 2018.