Property Management Professionals provides building management services to owners of office buildings and shopping centers. The company closes its accounts at the end of the calendar year.
The manner in which the company has recorded several transactions occurring during 2011 is described as follows:
On September 1, received advance payment from a shopping center for property management services to be performed over the three-month period beginning September 1. The entire amount received was credited directly to a revenue account.
On December 1, received advance payment from the same customer described in part a for services to be rendered over the three-month period beginning December 1. This time, the entire amount received was credited to an unearned revenue account.
Rendered management services for many customers in December. Normal procedure is to record revenue on the date the customer is billed, which is early in the month after the services have been rendered.
On December 15, made full payment for a one-year insurance policy that goes into effect on January 2, 2012. The cost of the policy was debited to Unexpired Insurance.
Numerous purchases of equipment were debited to asset accounts, rather than to expense accounts.
Payroll expense is recorded when employees are paid. Payday for the last two weeks of December falls on January 2, 2012.
For each item above, explain whether an adjusting entry is needed at December 31, 2011 , and state the reasons for your answer. If you recommend an adjusting entry, explain the effects this entry would have on assets, liabilities, owners’ equity, revenue, and expenses in the 2011 financial statements.