Question

Prepare the adjusting entries for each situation for Sibley Co., which began operations on September 1. a. The company records a $1,750 depreciation expense on machinery. b. Upon inception, the company received $21,000 for one-year membership revenues. The company also has a calendar year-end. c. The company's attorney, who bills at $42 per hour and agrees to bill Sibley Co. upon settlement, spent 45 hours on a legal issue. He expects the issue to be resolved in March of the following year.

Answer 1

Situation a requires an adjusting entry to record depreciation expense on machinery. Situation b requires an adjusting entry to recognize earned membership revenue. Situation c requires an adjusting entry to recognize the expense for the attorney's services.

Step-by-step explanation:

For situation a, the adjusting entry for the $1,750 depreciation expense on machinery would be to debit Depreciation Expense for $1,750 and credit Accumulated Depreciation for the same amount.

For situation b, since the company received $21,000 for one-year membership revenues, an adjusting entry would be needed to recognize the portion of membership revenue that has been earned by the end of the accounting period. Assuming the company's calendar year-end is December 31, the adjusting entry would be to debit Unearned Membership Revenue for a portion of the $21,000 that has not been earned and credit Membership Revenue for the portion that has been earned.

For situation c, the company's attorney spent 45 hours on a legal issue and expects to bill Sibley Co. upon settlement. In this case, an adjusting entry would be needed to recognize the expense incurred for the attorney's services. Assuming the settlement is expected in the following year, the adjusting entry would be to debit Legal Expense for 45 hours multiplied by the attorney's billing rate of $42 per hour and credit Accrued Legal Expense for the same amount.