Question

Drake Ltd. provides engineering consulting services to various clients. The company’s year-end is December 31 and adjusting entries are only prepared at year-end, on December 31.

For each of the following situations, prepare the necessary adjusting entries on December 31, 2020. If no entry is required, clearly indicate by writing “No Entry”.

1. On January 1, 2020, Drake Ltd had a balance in the Prepaid Insurance account in the amount of $3,600 representing 9 months insurance (up to September 30, 2020). On September 29, 2020 Drake purchased a 1 year insurance policy, beginning on October 1 for $3,000. Drake recorded the payment to Prepaid Insurance.

1. On December 1, 2020 Drake Ltd. Received a deposit of $6,000 from Bieber Enterprises for engineering consulting services. On that date, Drake recorded the amount it received to Deferred Revenue. By December 31, 2020 Drake Ltd. had completed $1,800 of engineering services for Bieber Ltd.

1. Drake pays its employees every Friday, $30,000 for a five-day work week (Monday to Friday). This year, December 31 falls on a Wednesday.

1. On July 31, 2020, Drake Ltd. obtained a 6 month, 6% loan for $60,000. Interest on the loan is to be paid on January 31, 2021 when the loan matures.

1. On November 1, 2020, Drake Ltd. purchased recording equipment for $30,000 by $9,000 cash and obtaining a loan for the balance. The estimated useful life of the equipment is 5 years.

Answer 1

Adjusting entry

No	General Journal	Debit	Credit
a	Insurance expense (3600+3000/12*3)	4350
	Prepaid insurance		4350
b	Deferred revenue	1800
	Service revenue		1800
c	Wages expense (30000/5*3)	18000
	Wages payable		18000
d	Interest expense (60000*6%*5/12)	1500
	Interest payable		1500
e	Depreciation expense (30000/5)*2/12	1000
	Accumulated depreciation-equipment		1000