Question

On November 28, 2021, Shocker receives a $2,250 payment from a customer for services to be rendered evenly over the next three months. Deferred Revenue is credited. On December 1, 2021, the company pays a local radio station $2,250 for 30 radio ads that were to be aired, 10 per month, throughout December, January, and February. Prepaid Advertising is debited. Employee salaries for the month of December totaling $6,500 will be paid on January 7, 2022. On August 31, 2021, Shocker borrows $55,000 from a local bank. A note is signed with principal and 9% interest to be paid on August 31, 2022.
Required:
Record the necessary adjusting entries for Shocker at December 31, 2018. No adjusting entries were made during the year.

Answer 1

Answer:

Dec 31, 2021

DR Deferred Revenue ...................................................$750

CR Service Revenue ...............................................................$750

Working

Service provided at end of November so only one month left in the year. Revenue earned is;

= 2,250/ 3 months

= $750

Dec 31, 2021

DR Advertising Expense ..................................................$750

CR Prepaid Adevertising............................................................$750

Working

Advertising is for 3 months and only one month has elapsed;

= 2,250/ 3 months

= $750

Dec 31, 2021

DR Salaries Expense ............................................................$6,500

CR Salaries Payable...........................................................................$6,500

Dec 31, 2021

DR Interest Expense .............................................................. $1,650

CR Interest Payable...............................................................................$1,650

Working

9% is payable on the note for the year.

This figure will be apportioned monthly and since 4 months were left when it was signed, the interest will be for 4 months

= 55,000 * 9% * 4/12 months

= $1,650