You are the accountant for Rolla Inc. (Rolla). For each of the following situations, prepare the necessary adjusting entries. Also show the related transactional entries and the date the entries would be made. Assume a July 31 year-end. This question can be done using an accounting equation spreadsheet or journal entries.
a. During the year, Rolla earned $5,000 per month in royalty revenue from another company that has rights to use one of Rolla’s patents. The full amount for the year must be paid on December 31.
b. On February 15, Rolla paid a supplier a $100,000 advance for materials it will receive over the next six months. As of July 31, 60 percent of the materials had been received. As of the end of July, none of the materials received had been used.
c. As of July 31, Rolla estimates that it owes $5,000 to its natural gas supplier for gas used in July. The company won’t be billed until September 8.
d. During the year, Rolla sold gifts cards to customers for $50,000. At the end of the year, $20,000 of the gift cards haven’t been redeemed.
e. On March 1, Rolla borrowed $100,000 from the bank. The annual interest cost of the loan is $7,000 per year. Interest must be paid on the last day of February each year the loan is outstanding.
f. On December 1, Rolla purchased a one-year insurance policy for $12,000.