Question

The information necessary for preparing the 2024 year-end adjusting entries for Gamecock Advertising Agency appears below. Gamecock's fiscal year-end is December 31. 1. On July 1, 2024, Gamecock received $6000 from a customer for advertising services to be given evenly over the next 10 months. Gamecock credited Deferred Revenue on July 1. 2. At the end of the year, income taxes owed are $7000. 3. On May 1, 2024, the company paid $4800 for a two-year fire and liability insurance policy. The company debited Prepaid Insurance on May 1. 4. On September 1, 2024, the company borrowed $20000 from a local bank and signed a note. Principal and interest at 12% will be paid on August 31, 2025. 5. At year-end there is a $2700 debit balance in the Supplies (asset) account. Only $1000 of supplies remains on hand at the end of the year. Required: Record the necessary adjusting entries on December 31, 2024. No prior adjustments have been made during 2024 . (Do not round intermediate calculations. If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

The year-end adjusting entries for Gamecock Advertising Agency involve accounting for unearned revenue, income taxes owed, prepaid insurance, interest on a note payable, and supplies used. Each adjustment reflects the accurate financial condition of the company as of December 31, 2024.

Step-by-step explanation:

To record the year-end adjusting entries for Gamecock Advertising Agency, we need to consider each situation described and adjust the accounts accordingly:

1. Unearned Revenue: The company received $6000 for services to be provided evenly over the next 10 months starting from July 1, 2024. By December 31, only 6 out of the 10 months have passed, so they've earned $3600 of the payment ($6000 x 6/10). The unearned portion is $2400. The adjusting entry will be a debit to Deferred Revenue and a credit to Revenue for $3600.
2. Income Taxes: The company owes income taxes of $7000. The entry will be a debit to Income Tax Expense and a credit to Income Tax Payable for $7000.
3. Prepaid Insurance: The company paid $4800 for a two-year insurance policy on May 1, 2024. By December 31, 2024, eight months of insurance have been used up. The expense per month is $200 ($4800/24 months), so for eight months that's $1600. The entry would be a debit to Insurance Expense and a credit to Prepaid Insurance for $1600.
4. Interest on Note Payable: The company borrowed $20000 on September 1, 2024, at an interest rate of 12% to be paid back after one year. Interest for four months (September through December) needs to be accrued. The monthly interest is $200 ($20000 x 12% / 12 months), so for four months, it's $800. The adjusting entry would be a debit to Interest Expense and a credit to Interest Payable for $800.
5. Supplies: The starting balance for supplies was $2700, but at year-end, only $1000 worth remains. This means $1700 worth of supplies have been used. The entry would be a debit to Supplies Expense and a credit to Supplies for $1700.

Remember to date these entries as of December 31, 2024, and to include an explanation for each transaction.