On June 30, the end of the current fiscal year, the following information is available to Axel
Question:
On June 30, the end of the current fiscal year, the following information is available to Axel Company’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:
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:
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.
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.
Expert Answer:
