Adjusting Entries: Prepaid Expenses and Unearned Revenues
Response to the following problem:
Kearl Associates is a professional corporation providing management consulting services. The company initially debits assets in recording prepaid expenses and credits liabilities in recording unearned revenues. Give the entry that Kearl would use to record each of the following transactions on the date it occurred.
Prepare the adjusting entries needed on December 31, 2009.
1. On July 1, 2009, the company paid a three-year premium of $5,400 on an insurance policy that is effective July 1, 2009, and expires June 30, 2012.
2. On February 1, 2009, Kearl paid its property taxes for the year February 1, 2009, to January 31, 2010. The tax bill was $2,400.
3. On May 1, 2009, the company paid $360 for a three-year subscription to an advertising journal. The subscription starts May 1, 2009, and expires April 30, 2012.
4. Kearl received $3,600 on September 15, 2009, in return for which the company agreed to provide consulting services for 18 months beginning immediately.
5. Kearl rented part of its office space to Davis Realty. Davis paid $900 on November 1, 2009, for the next six months' rent.
6. Kearl loaned $80,000 to a client. On November 1, the client paid $14,400, which represents two years' interest in advance (November 1, 2009, through October 31, 2011).