Second Exercise:
The following information relates to Fanning's electronics on December 31,2008. 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 weekly payroll is $8,750 paid each Friday for a five-day workweek. Assume December 31, 2008 falls on a Monday, but the employees will not be paid their wages until Friday, January 4, 2009.
b. Eighteen months earlier, on July 1, 2007, 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 1,2008 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. That amount was credited to the Unearned Services Revenue account. Between October 1 December 31, work on 20 homes was completed.
d. On September 1, 2008 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, 2008 the company completed a $7,000 service that has not been billed and not recorded as of December 31,2008.
Required
Prepare any necessary adjusting entries on December 31,2008 in relation to transactions and events a through e.
Prepare T-accounts for the accounts affected by adjusting entries, and post the adjusting entries. Determine the adjusted balances for the Unearned Revenue and the Prepaid Insurance accounts.
Complete the following table and determine the amounts and effects of your adjusting entries on the year 2008 income statement an December 31,2008 balance sheet. Use up (down) arrows to indicate an increase (decrease) in the Effect columns.
Account Title
DR (Debit)
CR (Cridit)