Question

ABC Corporation’s year-end is 31 December. Based on an analysis of the unadjusted trial
balance at 31 December, 2019, the following information was available:
1. Machinery costing $77,500 was acquired on 1 January 2019. It is estimated to have a useful life of six years. The machinery is estimated to have a $5,500 value at the end of its six-year life.
2. Accrued revenues at year-end totalled $14,500.
3. The Prepaid Insurance account showed a balance of $15,000. This was paid and takes effect on 1 January 2019 and represents a two-year policy.
4. Accrued salaries at year-end were $11,500.
5. $7,200 worth of advertising was prepaid on 1 January 2019 and debited to the Prepaid Advertising account. This covered twelve months of advertising beginning on the same date.
6. It was determined that $6,500 of completed work was included in the $10,000 Unearned Revenue account balance at year-end.
7. The Office Supplies account had a balance of $5,000 at the beginning of the accounting period. During the year, $30,500 of supplies were purchased and debited to the Office Supplies account. At year-end, a physical count of the supplies revealed $7,500 of office supplies available.
Required:
1. Prepare adjusting journal entries as at 31 December, 2019, based on the above
information. Include a short description for each entry.
2. Explain which GAAP principle(s) requires/require the recording of adjusting entries
and why.

Answer 1