On November 30, the end of the current fiscal year, the following infor- mation is available to assist Caruso Company’s accountants in making adjusting entries:
a. Caruso Company’s Supplies account shows a beginning balance of $2,350. Purchases during the year were $4,218. The end-of-year inventory reveals supplies on hand of $1,397.
b. The Prepaid Insurance account shows the following on November 30:
Beginning balance July 1 October 1
$4,720 4,200 7,272
The beginning balance represents the unexpired portion of a one-year policy purchased in September of the previous year. The July 1 entry repre- sents a new one-year policy, and the October 1 entry represents additional coverage in the form of a three-year policy.
c. The following table contains the cost and annual depreciation for buildings and equipment, all of which Caruso Company purchased before the current year:
Account Cost Annual Depreciation
Buildings $298,000 $16,000 Equipment 374,000 40,000
d. On September 1, the company completed negotiations with a client and accepted an advance of $18,600 for services to be performed monthly in the next year. The $18,600 was credited to Unearned Services Revenue.
e. The company calculated that as of November 30, it had earned $7,000 on an $11,000 contract that would be completed and billed in January.
f. Among the liabilities of the company is a note payable in the amount of $300,000. On November 30, the accrued interest on this note amounted to $18,000.
g. On Saturday, December 2, the company, which is on a six-day workweek, will pay its regular employees their weekly wages of $15,000.
h. On November 29, the company completed negotiations and signed a con- tract to provide services to a new client at an annual rate of $23,000.
Required
1. Prepare adjusting entries for each item listed above.
2. Explain how the conditions for revenue recognition are applied to transactions e and h.