Samuels Corp. began operations on January 1, 2014. Its fiscal year end is December 31. Samuels has decided that prepaid costs are debited to an asset account when paid, and all revenues are credited to revenue when the cash is received. During 2014, the following transactions occurred.
1. On January I, 2014, Samuels bought office supplies for $4,100 cash. A physical count at December 31,2014, revealed $ 1,900 of supplies still on hand.
2. Samuels bought a $6,000, one-year insurance policy for cash on August 1, 2014. The policy came into effect on this date.
3. On November 15, 2014, Samuels received a $1,200 advance cash payment from a client for architectural services to be provided in the future. As at December 31, 2014, one third of these services had not been performed.
4. On December 1, 2014, Samuels rented out excess office space for a six-month period starting on this date, and received a $1,100 cheque for the first and last month; rent.
Instructions
(a) For each of the above transactions, prepare the journal entry for the original transaction and any adjusting entry required at December 31,2014.
(b) In a business where there are several divisions or office locations where accounting is performed, is it possible that prepayments would be treated as assets in some offices and as expenses in others when initially recorded? Why or why not? Does the business have to have a consistent approach in all of its offices?·