Chapter 4, Problem 4.6E

Recording Adjusting Entries and Reporting Balances in Financial Statements

  Gauge Construction Company is making adjusting entries for the year ended March 31 of the current year. In developing information for the adjusting entries, the accountant learned the following:

1. a. The company paid $1,800 on January I of the current year to have advertisements placed in the local monthly neighborhood paper. The ads were to be run from January through June. The bookkeeper debited the full amount to Prepaid Advertising on January 1.
2. b. At March 31 of the current year, the following data relating to Construction Equipment were obtained from the records and supporting documents.

Construction equipment (at cost)        $340.000

Accumulated depreciation (through March 31 of the prior year)     132.000

Estimated annual depreciation for using the equipment        34.000

Required:

1. 1. Using the process illustrated in the chapter, record the adjusting entry for advertisements at March 31 of the current year.
2. 2. Using the process illustrated in the chapter, record the adjusting entry for the use of construction equipment during the current year.
3. 3. What amount should he reported on the current year’s income statement for Advertising Expense?  For Depreciation Expense?
4. 4. What amount should be reported on the current year's balance sheet for Prepaid Advertising? For Construction Equipment (at net book value)?