Question

The information necessary for preparing the 2021 year-end adjusting entries for Gamecock Advertising Agency appears below. Gamecock’s fiscal year-end is December 31. On July 1, 2021, Gamecock receives $4,300 from a customer for advertising services to be given evenly over the next 10 months. Gamecock credits Deferred Revenue. At the beginning of the year, Gamecock’s depreciable equipment has a cost of $31,800, a six-year life, and no salvage value. The equipment is depreciated evenly (straight-line depreciation method) over the six years. On May 1, 2021, the company pays $2,760 for a two-year fire and liability insurance policy and debits Prepaid Insurance. On September 1, 2021, the company borrows $27,000 from a local bank and signs a note. Principal and interest at 9% will be paid on August 31, 2022. At year-end there is a $1,850 debit balance in the Supplies (asset) account. Only $830 of supplies remains on hand.

Answer 1

In the books of Gamecock's for the fiscal year ending December 31
	(Amount in $)
Particulars	Debit	Credit	Reference
Deffered Revenue	2,580		WN1
Revenue from Customer		2,580
(Being Revenue for year 2021 recorded)
Depreciation	5,300		WN2
Accumulated Depreciation - Equipment		5,300
(Being Depreciation on Equipment for year 2021 recorded)
Insurance Expense	920		WN3
Prepaid Insurance		920
(Being Insurance Expense for year 2021 recorded)
Interest Expense	810		WN4
Interest Payable		810
(Being Interest Expense for year 2021 recorded)
Supplies Expenses	1,020
Supplies (Assets) ($1850- $830)		1,020
(Being Supplies Expense recorded)
Workings
W1 Revenue from Customer
Amount received from Customer on July 1st	4,300
Tenure	10
Revenue to recorded per month ( 4,300/10)	430
Revenue to recorded from July to December for 6 month (430*6 months)	2,580
WN2 Depreciation Calculation
Cost of depreciable equipment	31,800
Life in Year	6
Depreciation (Cost/ Number of Years) (31800/6)	5,300
WN3 Calculation of Insurance Expense
Insurance amount paid on May 1st	2,760
Tenure (2 Years or 24 months)	24
Insurance expense to recorded per month ( 2760/24)	115
Insurance expense to recorded from May to December for 6 month (115*8 months)	920
WN4 Calculation of Interest Expense
Principal Borrowed	27,000
Tenure (Repayable on Aug 31 2022) - 12 months from Sep 01, 2021	12
Rate of Interest	9%
Interest to recorded from September to December for 4 month (27,000*9%*4/12)	810