On June 30 the end of the current fiscal year
On June 30, the end of the current fiscal year, the following information is available to Heart Company’s accountants for making adjusting entries:
a. One of the company’s liabilities is a mortgage payable in the amount of $520,000. On June 30, the accrued interest on this mortgage was $26,000.
b. On Friday, July 2, the company, which is on a five-day workweek and pays employees weekly, will pay its regular salaried employees $37,400.
c. On June 29, the company completed negotiations and signed a contract to provide services to a new client at an annual rate of $14,400.
d. The Supplies account shows a beginning balance of $3,230 and purchases during the year of $8,230. The end-of-year inventory reveals supplies on hand of $2,636.
e. The Prepaid Insurance account shows the following entries on June 30:
Beginning Balance .......$3,240
January 1 ............ 5,800
May 1 .............. 6,732
The beginning balance represents the unexpired portion of a one-year policy purchased a year ago. The January 1 entry represents a new one-year policy; the May 1 entry represents the additional coverage of a three-year policy.
f. The following table contains the cost and annual depreciation for buildings and equipment, all of which were purchased before the current year:

.:.
g. On June 1, the company completed negotiations with another client and accepted a payment of $43,200, representing one year’s services paid in advance. The $43,200 was credited to Services Collected in Advance.
h. The company calculates that as of June 30, it had earned $9,000 on a $15,000 contract that will be completed and billed in August.
i. Federal income taxes for the year are estimated to be $12,600.

REQUIRED
1. Prepare adjusting entries for each item listed above.
2. Explain how the conditions for revenue recognition are applied to transactions c and h.

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