Question

SnapShot Company, a commercial photography studio, has just completed its first full year of operations on December 31, 2015. General ledger account balances before year-end adjustments follow; no adjusting entries have been made to the accounts at any time during the year. Assume that all balances are normal.

Cash	$2,150	Accounts Payable	$1,910
Accounts Receivable	3,800	Unearned Photography Fees	2,600
Prepaid Rent	12,600	Common Stock	24,000
Prepaid Insurance	2,970	Photography Fees Earned	34,480
Supplies	4,250	Wages Expense	11,000
Equipment	22,800	Utilities Expense	3,420

An analysis of the firm's records discloses the following.

1. Photography services of $925 have been rendered, but customers have not yet paid or been billed. The firm uses the account Fees Receivable to reflect amounts due but not yet billed.
2. Equipment, purchased January 1, 2015, has an estimated life of 10 years.
3. Utilities expense for December is estimated to be $400, but the bill will not arrive or be paid until January of next year.
4. The balance in Prepaid Rent represents the amount paid on January 1, 2015, for a 2-year lease on the studio.
5. In November, customers paid $2,600 cash in advance for photos to be taken for the holiday season. When received, these fees were credited to Unearned Photography Fees. By December 31, all of these fees are earned.
6. A 3-year insurance premium paid on January 1, 2015, was debited to Prepaid Insurance.
7. Supplies available at December 31 are $1,520.
8. At December 31, of $375 has been incurred but not paid or recorded.

(d) Set up T-accounts, enter the balances above, and post the adjusting entries to them.

Answer 1

Solution

SnapShot Company

Adjusting Entries:
Date	Account Titles and Explanation		Debit	Credit
31-Dec-15	Fees Receivable		$925
	Service Revenue			$925
	(To record services rendered)
31-Dec	Depreciation Expense - Equipment		$2,280
	Accumulated Depreciation - Equipment			$2,280
	(To rcord depreciation expense on equipment)
31-Dec	Rent Expense		$6,300
	Prepaid Rent			$6,300
	(To recognize rent expense for the year 2015, 12,600/2 = $6,300)
31-Dec	Unearned Photography Fees		$2,600
	Service Revenue			$2,600
	(To recognize rent expense for the year 2015, 12,600/2 = $6,300)
31-Dec	Insurance Expense		$990
	Prepaid Insurance			$990
	(To recognize insurance expense for the year 2015, 2,970/3 years = $990)
31-Dec	Supplies Expense		$2,730
	Supplies			$2,730
	(To record supplies used during the year)
31-Dec	Utilities Expense		$400
	Utilities Payable			$400
	(To record unpaid utilities bill)
31-Dec	Wages Expense		$375
	Wages Payable			$375
	(To record unpaid wages )