Recording the adjusting entries
Magasaki Company”s annual accounting year ends on December 31. It is December 31, 2007, and all of the 2007 entries except the following adjusting entries have been made:
- On September 1, 2007, Magasaki collected six months” rent of $810,000 on storage space. At that date, Magasaki debited cash credited unearned revenue for $810,000.
- At December 31, 2007, wages earned by employees totaled $1,608,000. The employees will be paid on the next payroll date, January 15, 2008.
- The company earned service revenues of $225,000 on a special mission job that was completed December 29, 2007. Collected will be made in January 2008. No entry has been recorded.
- On October 1, 2007 Company borrowed $2,249,000 from a local bank and signed a 12 percent note for that amount. The Principle and interest are payable on the maturity date, September 31, 2008.
- On November 1, 2007 Magasaki paid a one year premium for property insurance, $675,000 for coverage stating on that date. Cash was credited and prepaid insurance was debited for this amount.
- Depreciation of $167,000 must be recognized on a services truck purchased on July 1, 2007, at a cost of $1,349,000.
- Cash of $27,000 was collected on November 1, 2007, for services to be rendered evenly over the next year beginning on November1. Unearned services revenue was credit when the cash was received.
- On December 31, 2007, the company estimates it owed $45,000 for 2007 property tax on land. The tax will be paid when the bill is received in January 2008.
Required:
1. Indicate whether each transaction relates to a deferred revenue, deferred expense, accrued revenue or accrued expense.
2. Give the adjusting entry required for each transaction at December 31, 2007.