Question

The information necessary for preparing the 2018 year-end adjusting entries for Winter Storage appears below. Winter's fiscal year-end is December 31.

a. Depreciation on the equipment for the year is $7,000.
b. Salaries earned (but not paid) from December 16 through December 31, 2018, are $3,400.
c. On March 1, 2018, Winter lends an employee $12,000 and a note is signed requiring principal and interest at 6% to be paid on February 28, 2019.
d. On April 1, 2018, Winter pays an insurance company $15,000 for a one-year fire insurance policy. The entire $15,000 is debited to prepaid insurance at the time of the purchase.
e. $1,500 of supplies are used in 2018.
f. A customer pays Winter $4,200 on October 31, 2018, for six months of storage to begin November 1, 2018. Winter credits deferred revenue at the time of cash receipt.
g . On December 1, 2018, $4,000 advertising is paid to a local newspaper. The payment represents advertising for December 2018 through March 2019, at $1,000 per month. Prepaid advertising is debited at the time of the payment.
Required: Record the necessary adjusting entries at December 31, 2018.

Answer 1

Adjusting entries are entries that indicate the events of the company that have occurred but not yet recorded by the company.

a. DATE DESCRIPTION DEBIT CREDIT

Dec 31 Depreciation Expenses $7,000

2018 Accumulated Expenses $7,000

(Record depreciation on equipment )

b. DATE DESCRIPTION DEBIT CREDIT

Dec 31 Salary expenses $3,400

2018 Salary payable $3,400

(Record salary incurred but not paid)

c. DATE DESCRIPTION DEBIT CREDIT

Dec 31 Interest receivables $660

2018 (12,000 * 6% * 11/12)

Interest revenue $660

(Record of interest earned)

d. DATE DESCRIPTION DEBIT CREDIT

Dec 31 Insurance Expenses $11,250

2018 (15,000 * 9/12)

Prepaid Insurance $11,250

(Record payment of insurance expenses)

e. DATE DESCRIPTION DEBIT CREDIT

Dec 31. Supplies Expenses $1,500

2018 Supplies $1,500

(Record of supplies)

f. DATE DESCRIPTION DEBIT CREDIT

Dec 31, Deferred revenue $1,400

2018 (4,200 * 2 month / 6 month)

Service revenue $1,400

(Record advance payment for services provided)

g. DATE DESCRIPTION DEBIT CREDIT

Dec 31, Advertisement Expenses $1,000

2018 Prepaid Advertisement $1,000

(Record payment for advertisement)