CH3AdjustingEntries - Chapter 3 - Adjusting Entries 3131...

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- Adjusting Entries 3131 Intermediate Financial Accounting I PROBLEM #1 The following information relates to the Airflame Company at the end of 2007. They sell merchandise and magazine subscriptions. The accounting period is the calendar year. This is the company's first year of operations. 1. Employees are paid every Friday for the five-day work week ending on that day. Salaries amount to $2,400 per week. The accounting period ends on a Wednesday. 2. On October 1,2007, Airflame borrowed $8,000 cash by signing a note payable due in one year at 8% interest. Interest is due when the principal is paid. 3. A note for $2,000 was received from a customer in a sales transaction on May 1, 2007. The note matures in one year and bears 12% interest per annum. Interest is due when the principal is due. 4. A portion of Airflame's parking lot is used by executives of a neighboring company. A person pays $6 per day for each day's use, and the parking fees are due by the fifth business day following the month of use. The fees for December 31, 2007 amount to $1,260. 5. On July 1, 2007, cash of $48,000 was received from subscribers (customers) for a 36-month subscription period beginning on that date. The receipt was recorded by a debit to Cash and a credit to Unearned Subscription Revenue. 6. The Office Supplies on Hand account showed a balance of $3,500 at the beginning of 2007. Supplies costing $12,000 were purchased during 2007 and debited to the asset account. Supplies of $2,200 were on hand at December 31,2007. 7. An insurance premium of $8,000 was paid on April 1, 2007, and was charged to Prepaid Insurance. The premium covers a 24-month period beginning April 1, 2007. PROBLEM #2 The following information relates to the Brittany Spears Magazine Company at the end of 2007. The accounting period is the calendar year. 1. An insurance premium of $8,000 was paid on April 1, 2007, and was charged to Prepaid Insurance. The premium covers a 24-month period beginning April 1, 2007. 2. The Office Supplies on Hand account showed a balance of $3,500 at the beginning of 2007. Supplies costing $12,000 were purchased during 2007 and debited to the asset account. Supplies of $2,200 were on hand at December 31,2007. 3. On July 1, 2007, cash of $48,000 was received from subscribers (customers) for a 36-month subscription period beginning on that date. The receipt was recorded by a debit to Cash and a credit to Unearned Subscription Revenue. 4. At the beginning of 2007, the Unearned Advertising Revenue account had a balance of $75,000. During 2007, collections from advertisers of $800,000 were recorded by credits to Unearned Advertising Revenue. At the end of 2007, revenues received but not earned are computed to be $51,000. Using the information given above, prepare the necessary adjusting entries at December 31, 2007.
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CH3AdjustingEntries - Chapter 3 - Adjusting Entries 3131...

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