Question

Prepare adjusting entries.

A review of the ledger of Monkey Ltd at 30 June 2019 produced the following data relating to the preparation of annual adjusting entries:

1. Prepaid insurance $37260: the entity has separate insurance policies on its buildings and its motor vehicles. Policy B4564 on the building was purchased on 1 January 2018 for $33300. The policy has a term of 3 years. Policy A2958 on the vehicles was purchased on 1 July 2018 for $9510. This policy has a term of 2 years.

2. Subscriptionrevenue received inadvance $135200:theentitybegan sellingmagazine subscriptions on 1 April 2019 on an annual basis. The selling price of a subscription is $130. A review of subscription contracts reveals the following:
Subscription start date Number of subscriptions

1 April 200

1 May 300

1 June 540

1040
The annual subscription is for 12 monthly issues. The June magazine for all of the subscriptions had been delivered to the subscribers at 30 June 2019.

3. Bank loan $100000: the loan was taken out on 1 April at an annual interest rate of 6%.

4. Salaries payable: There are eight salaried employees. Salaries are paid every Friday for the current week. Four employees receive a salary of $1050 each per week, and three employees earn $1350 each per week. 30 June is a Tuesday. Employees do not work on weekends. All employees worked the last 2 days of June.

Required

(a) Prepare the adjusting journal entries at 30 June 2019.

(b) Explain why the business would not recognise the full subscription revenue when the customers sign up for the magazines and pay for the subscription.

Answer 1

Adjustment Entries
date	explanation	debit	credit
30-Jun	Insurance expense-building	5550
	Insurance expense-vehicle	2377.5
	prepaid insurance		7927.5
Insurance expense building	(33300/3)*0.5	5550
Insurance expense-vehcile	(9510/2)*0.5	2377.5
30-Jun	unearned revenue	82740
	revenue earned		82740
	revenue earned
April	(200/12)*3*12	600
May	(300/12)*2*12	600
June	(540/12)*1812	81540
total revenue earned		82740
30-Jun	Interest expense	1500
	interest payable		1500
30-Jun	salaries expense	3000
	salaries payable		3000
First four employees	(1050/5)*2*2	840
2nd four employees	(1350/5)*2*4	2160
total		3000
because only magazines are supplied upto the date of june 30 are considered and would be counted for subscription which is earned.