Question

The following additional information is known on December 31:

1. Supplies purchased during the year were recorded to the Supplies account. Supplies on hand at the end of December equal $4,000.
2. Insurance for 12 months was purchased on September 1 and recorded to Prepaid Insurance.
3. Salaries paid for the first 11 months of the year total $94,000. Salaries for December were $16,000 but have not been paid.
4. On December 1, Golden Eagle received $18,000 from a customer for rent for the period December through February and recorded Deferred Revenue at that time. By the end of December, one month of this rent has been provided. Rent Revenue for rent provided to other customers during the year totaled $70,000.

Answer 1

The question is about making accounting adjustments for year-end financial statements. It includes adjustments for supplies, prepaid insurance, salaries, and deferred revenue. The process follows accrual accounting principles to ensure financial statements are accurate.

Step-by-step explanation:

The subject of the student's question concerns adjusting entries in accounting, specifically related to year-end adjustments for supplies, prepaid expenses, salaries payable, and deferred revenue. When businesses prepare their financial statements at the end of an accounting period, they are required to ensure all their financial information is up-to-date and reflects the true state of the business. In accounting, this process involves adjusting entries to match expenses to the periods in which they are incurred and to recognize revenues in the periods in which they are earned, following the accrual basis of accounting. In the scenarios provided:

• For supplies, an adjusting entry would decrease (debit) the Supplies Expense and increase (credit) the Supplies account.
• For prepaid insurance, the cost of the insurance would be allocated monthly since the purchase on September 1st.
• For salaries, the unpaid salaries for December would be recognized as Salaries Expense for the month and credited to Salaries Payable.
• Finally, for deferred revenue, the portion of the rent that has been earned in December will be recognized as Rent Revenue.

This practice of adjusting entries ensures that the financial statements accurately reflect the business's financial position and performance for the period.