Question

The following information relates to Fanning’s Electronics on December 31, 2017. The company, which uses the calendar year as its annual reporting period, initially records prepaid and unearned items in balance sheet accounts (assets and liabilities, respectively). a. The company’s modulely payroll is $8,750, paid each Friday for a five-day workmodule. Assume December 31, 2017, falls on a Monday, but the employees will not be paid their wages until Friday, January 4, 2018. b. Eighteen months earlier, on July 1, 2016, the company purchased equipment that cost $20,000. Its useful life is predicted to be five years, at which time the equipment is expected to be worthless (zero salvage value). c. On October 1, 2017, the company agreed to work on a new housing development. The company is paid $120,000 on October 1 in advance of future installation of similar alarm systems in 24 new homes. The $120,000 was credited to the Unearned Services Revenue account. Between October 1 and December 31, work on 20 homes was completed. d. On September 1, 2017, the company purchased a 12-month insurance policy for $1,800. The transaction was recorded with an $1,800 debit to Prepaid Insurance. e. On December 29, 2017, the company completed a $7,000 service that has not been billed or recorded as of December 31, 2017.

Answer 1

Adjusting entries

No	General Journal	Debit	Credit
a	Salaries and wages expense (8750/5*1)	1750
	Salaries and wages payable		1750
b	Depreciation expense (20000/5)	4000
	Accumulated depreciation-equipment		4000
c	Unearned service revenue (120000/24*20)	100000
	Service revenue		100000
d	Insurance expense (1800/12*4)	600
	Prepaid insurance		600
e	Account receivable	7000
	Service revenue		7000