Adjusting Entries
Response to the following problem:
Davis Company opened a Web page design business on January 1 of the current year. The following information relates to Davis Company's operations during the current year:
1. On February 1, Davis Company rented a new office. Before moving in, it prepaid a year's rent of $24,000 cash.
2. On March 31, Davis Company borrowed $50,000 from a local bank at 15%. The loan is to be repaid, with interest, after one year. As of December 31, no interest payments had yet been made.
3. Davis Company bills some of its customers in advance for its design services. During the year, Davis received $60,000 cash in advance from its customers. As of December 31, Davis's accountant determined that 40% of that amount had not yet been earned.
4. On June 15, Davis Company purchased $1,400 of supplies for cash. On September 14, Davis made another cash purchase of $1,100. As of December 31, Davis's accountant determined that $1,700 of supplies had been used during the year.
5. Before closing its books, Davis Company found a bill for $800 from a free-lance programmer who had done work for the company in November. Davis had not yet recorded anything in its books with respect to this bill. Davis plans to pay the bill in January of next year.
For each of the items, make the initial entry, where appropriate, to record the transaction and, if necessary, the adjusting entry at December 31.