The geological consulting firm of Gilbert, Marsh, & Kester
prepares adjusting entries on a monthly basis. Among the items
requiring adjustment on December 31, year 2, are the
following.
1.The company has outstanding a $50,000, 9 percent, 2-year
note payable issued on July 1, year 1. Payment of the $50,000 note,
plus all accrued interest for the 2-year loan period, is due in
full on June 30, year 3.
2.The firm is providing consulting services to Texas Oil
Company at an agreed-upon rate of $1,000 per day. At December 31,
10 days of unbilled consulting services have been provided.
a.Prepare the two adjusting entries required on December 31
to record the accrued interest expense and the accrued consulting
revenue earned.
b.Assume that the $50,000 note payable plus all accrued
interest are paid in full on June 30, year 3. What portion of the
total interest expense associated with this note will be reported
in the firm’s year 3 income statement?
c.Assume that on January 30, year 3, Gilbert, Marsh, &
Kester receive $25,000 from Texas Oil Company in full payment of
the consulting services provided in December and January. What
portion of this amount constitutes revenue earned in January?