Recording Adjusting Entries $($AP$4-3)$

Mellor Towing Company provides hauling and delivery services for other businesses. It is at the end of its

accounting year ending December $31.$ The following data that must be considered were developed from

the company's records and related documents:

a$.$ On January $1$ of the current year, the company purchased a new hauling van at a cash cost of $$38,000.$

Depreciation estimated at $$3,800$ for the year has not been recorded for the current year.

b$.$ During the current year, office supplies amounting to $$1,000$ were purchased for cash and debited in

full to Supplies. At the end of last year, the count of supplies remaining on hand was $$400.$ The inven$-$

tory of supplies counted on hand at the end of the current year was $$180.$

c$.$ On December $31$ of the current year, Lanie's Garage completed repairs on one of Mellor Towing's

trucks at a cost of $$2,600$; the amount is not yet recorded by Mellor Towing and by agreement will be

paid during January of next year.

d$.$ On December $31$ of the current year, property taxes on land owned during the current year

were estimated at $$1,900.$ The taxes have not been recorded and will be paid in the next year when

billed.

e$.$ On December $31$ of the current year, the company completed towing service for an out$-$of$-$state com$-$

pany for $$4,000$ payable by the customer within $30$ days. No cash has been collected, and no journal

entry has been made for this transaction.

f$.$ On July $1$ of the current year, a three$-$year insurance premium on equipment in the amount of

$$900$ was paid and debited in full to Prepaid Insurance on that date. Coverage began on July $1$ of the

current year.

g$.$ On October $1$ of the current year, the company borrowed $$25,000$ from the local bank on a two$-$year, $10$

percent note payable. The principal plus interest is payable at the end of $24$ months.

h$.$ The income before any of the adjustments or income taxes was $$30,000.$ The company's income tax

rate is $21$ percent. $($Hint: Compute adjusted pre$-$tax income based on $(a)$ through $(g)$ to determine

income tax expense.$)$ Round the income tax computation to the nearest dollar.

Required:

Indicate whether each transaction relates to a deferred revenue, deferred expense, accrued revenue, or

accrued expense.

Prepare the adjusting entry required for each transaction at December $31$ of the current year.