Question

Preparing Accounting Adjustments

Pownall Photomake Company, a commercial photography studio, completed its first year of operations on

December 31. Account balances before year-end adjustments follow; no adjustments have been made to

the accounts at any time during the year. Assume that all balances are normal.

Cash ........................... $ 4,300 Accounts payable ................ $ 4,060

Accounts receivable............... 3,800 Unearned photography fees........ 2,600

Prepaid rent ..................... 12,600 Common stock .................. 24,000

Prepaid insurance................. 2,970 Photography fees earned .......... 34,480

Supplies ........................ 4,250 Wages expense ................. 11,000

Equipment ...................... 22,800 Utilities expense . . . . . . . . . . . . . . . . . 3,420

An analysis of the firm’s records discloses the following (business began on January 1).

1. Photography services of $1,850 have been rendered, but customers have not yet paid or been billed.

The company uses the fees receivable account to reflect amounts due but not yet billed.

2. Equipment, purchased January 1, has an estimated life of 10 years.

3. Utilities expense for December is estimated to be $400, but the bill will not arrive or be paid until

January of next year. (All prior months’ utilities bills have been received and paid.)

4. The balance in prepaid rent represents the amount paid on January 1 for a two-year lease on the

studio it operates from.

5. In November, customers paid $2,600 cash in advance for photos to be taken for the holiday season.

When received, these fees were credited to unearned photography fees. By December 31, all of

these fees are earned.

6. A three-year insurance premium paid on January 1 was debited to prepaid insurance.

7. Supplies still available at December 31 are $1,020.

8. At December 31, wages expense of $375 had been incurred but not yet paid or recorded.

Required

Prepare the required adjusting entries using the financial statement effects template

Answer 1

Adjustment Journal Entries
date	explanation	debit	credit
31-Dec	fees receivables	1850
	fees earned		1850
31-Dec	depreciation expense	2280
	accumuated depreciation-equipment		2280
31-Dec	utilities expenses	400
	utilities payable		400
31-Dec	rent expense	6300
	prepaid rent		6300
31-Dec	unearned photography fee	2600
	photography fees earned		2600
31-Dec	insurance expense	990
	prepaid insurance		990
31-Dec	supplies expense	3230
	supplies		3230
31-Dec	wages expense	375
	wages payable		375