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.

1. On July 1, 2021, Gamecock receives $4,500 from a customer for advertising services to be given evenly over the next 10 months. Gamecock credits Deferred Revenue.
2. At the beginning of the year, Gamecock’s depreciable equipment has a cost of $27,500, a five-year life, and no salvage value. The equipment is depreciated evenly (straight-line depreciation method) over the five years.
3. On May 1, 2021, the company pays $3,000 for a two-year fire and liability insurance policy and debits Prepaid Insurance.
4. On September 1, 2021, the company borrows $25,000 from a local bank and signs a note. Principal and interest at 9% will be paid on August 31, 2022.
5. At year-end there is a $1,950 debit balance in the Supplies (asset) account. Only $850 of supplies remains on hand.

      
Required:

Record the necessary adjusting entries on December 31, 2021. No prior adjustments have been made during 2021. (Do not round intermediate calculations. If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

		Debit	Credit
1	Deferred Revenue	2700		=4500*6/10
	Service revenue		2700
2	Depreciation expense	5500		=27500/5
	Accumulated depreciation		5500
3	Insurance expense	1000		=3000*8/24
	Prepaid insurance		1000
4	Interest expense	750		=25000*9%*4/12
	Interest payable		750
5	Supplies expense	1100		=1950-850
	Supplies		1100