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 $5,300 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 $31,500, 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 $3,960 for a two-year fire and liability insurance policy and debits Prepaid Insurance.
4. On September 1, 2021, the company borrows $13,000 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 $2,350 debit balance in the Supplies (asset) account. Only $930 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

Adjusting entry

No	General Journal	Debit	Credit
Dec 31	Deferred revenue (5300/10*6)	3180
	Service revenue		3180
Dec 31	Depreciation expense (31500/5)	6300
	Accumulated dep-equipment		6300
Dec 31	Insurance expense (3960/24*8)	1320
	Prepaid insurance		1320
Dec 31	Interest expense (13000*9%*4/12)	390
	Interest payable		390
Dec 31	Supplies expense (2350-930)	1420
	Supplies		1420