On June 30, the end of the current fiscal year, the following information is available to Axel Corporation's accountants for making adjusting entries:
a. Among the liabilities of the company is a mortgage payable in the amount of $280,000. On June 30, the accrued interest on this mortgage amounted to $14,000.
b. On Friday, July 2, the company, which is on a five-day workweek and pays employees weekly, will pay its regular salaried employees $23,100.
c. On June 29, the company completed negotiations and signed a contract to provide monthly services to a new client at an annual rate of $6,645.
d. The Supplies account shows a beginning balance of $1,975 and purchases during the year of $2,846. The end-of-year inventory reveals supplies on hand of $1,984.
e. The Prepaid Insurance account shows the following entries on June 30:
Beginning balance...........................$1,333
January 1.......................................2,544
May 1...........................................3,168
The beginning balance represents the unexpired portion of a one-year policy purchased in April of the previous year. The January 1 entry represents a new one-year policy, and 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:
Account Cost Annual Depreciation
Buildings.............$235,000.....................$ 6,301
Equipment.............198,000.....................11,520
g. On June 1, the company completed negotiations with another client and accepted an advance of $31,080 for services to be performed for a year. The $31,080 was credited to Unearned Service Revenue.
h. The company calculates that, as of June 30, it had earned $3,600 on a $9,600 contract that will be completed and billed in August.
i. Federal income taxes for the year are estimated to be $5,300.
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.