Question

The Jamesway Corporation had the following situations on December 2021.On December 10, 2021, Jamesway received a $4,000 payment from a customer for services begun on that date and which were completed by December 31, 2021. Deferred service revenue was credited.On December 1, 2021, the company paid a local radio station $5,200 for 40 radio ads that were to be aired, 20 per month, throughout December and January. Prepaid advertising was debitedEmployee salaries for the month of December totaling $16,000 will be paid on January 7, 2022.On August 31, 2021, Jamesway borrowed $60,000 from a local bank. A note was signed with principal and 8% interest to be paid on August 31, 2022.Prepare the necessary adjusting entries at its year-end of December 31, 2021. No adjusting entries were recorded during the year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

Date    Particulars                                       Debit            Credit

           Deferred Service Revenue A/c     $4,000

                     To Revenue A/c                                           $4,000

            (Being Revenue recognized)

          Advertisement Expense  A/c           $2,600

                  To Prepaid Advertisement A/c                      $2, 600

          (Being expense recognized)

           Employees Salaries A/c                  $16,000

                  To Outstanding Employees Salaries A/c      $16,000

           (Being expense & liability recorded)

           

             Interest expense A/c                      $1,600

                           To Interest Liability A/c                            $1,600

             (Being Interest expense & Liability for the

               month September to December recorded)

Assumptions & Working notes:-

i) Since service is performed in the same financial year revenue is transferred from deferred revenue account to revenue account.

ii) Since 20 advertisements shown in the month of December only so expense related to those 20 is recognized in the month of December and remaining in the month of January.

$5,200/40*20 = $2,600

iii) Since salaries are paid in month of January but this is the expense for the month of December we recorded above entry.

iv) Interest Expense for months September to December is recorded and corresponding liability is created.

($60,000 * 8%) / 12 * 4 = $ 1,600