This exercise will provide you with examples of adjusting entries for prepaid expenses and unearned revenues (that is, for the deferral of expenses and revenues).
The following information relates to the Brittany Spears Magazine Company at the end of 2014. The accounting period is the calendar year.
- An insurance premium of $8,000 was paid on April 1, 2014, and was charged to Prepaid Insurance. The premium covers a 24-month period beginning April 1, 2014.
- The Office Supplies On Hand account showed a balance of $3,500 at the beginning of 2014. Supplies costing $12,000 were purchased during 2014 and debited to the asset account. Supplies of $2,200 were on hand at December 31, 2014.
- On July 1, 2014, 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.
- At the beginning of 2014, the Unearned Advertising Revenue account had a balance of $75,000. During 2014, collections from advertisers of $800,000 were recorded by credits to Unearned Advertising Revenue. At the end of 2014, revenues received but not earned are computed to be $51,000.
Using the information given above, prepare the necessary adjusting entries at December 31, 2014.