Question

1. The information necessary for preparing the 2015 year-end adjusting entries for Tom Jackson Advertising Agency appears below. Jackson’s fiscal year-end is December 3
   1. On July 1, 2015, Jackson receives $5,000 from a customer for advertising services to be given evenly over the next 10 months (beginning in July). Jackson credits unearned revenue on July 1.

2. On January 1, 2015, Jackson bought a depreciable equipment for $30,000 cash. The equipment has a five-year life and no residual value. The equipment is depreciated evenly (straight-line depreciation method) over the five years.

3. On November 1, 2015, extra office space is rented to Don Jackson, Tom’s brother, for the next six months. Payment of $6,000 is due at the end of the six months (April 30, 2016). No entry is made on November 1.

4. On May 1, 2015, the company pays $3,600 for a two-year fire and liability insurance policy and debits prepaid insurance.

5. On September 1, 2015, the company borrows $10,000 from a local bank and signs a note. Principal and interest of 12% (annual rate) will be paid on August 31, 2016.

6. At year-end there is a $2,200 debit balance in the supplies (asset) account, but only $900 of supplies remains on hand. Some of the supplies must have been used up.

Record the necessary adjusting entries on December 31, 2015. No prior adjustments have been made during 2015.

2. Find balances for the following as they would appear on the December 31, 2015 balance sheet.

1. Unearned Revenue. Beginning balance was $2,000 credit.

2. Equipment, net. Assume that the equipment in part b is the only equipment Jackson owns.

3. Prepaid Insurance. Beginning balance was $0.

Answer 1