Action Quest Games Inc. initially records all prepaid costs as assets and all revenue collected in advance as liabilities. The company adjusts its accounts annually. The following information is available for the year ended December 31, 2012:

1. Purchased a one-year insurance policy on June 1, for $1,800 cash.

2. Paid $6,500 on August 31 for five months' rent in advance.

3. On September 14, received $3,600 cash from a corporation to sponsor a game each month for the most improved students. The amount is to be distributed evenly over nine times of playing the game, once on the first Friday of each month starting in October.

4. Signed a contract for cleaning services starting December 1, for $1,000 per month. Paid for the first two months on November 30.

5. On December 5, received $1,500 in advance from a gaming club. Determined that on December 31, $475 of these games had not yet been played

Instructions

(a) For each of the above transactions, prepare the journal entry to record the initial transaction.

(b) For each of the above transactions, prepare the adjusting journal entry that is required on December 31, 2012.

(c) Post the journal entries in parts (a) and (b) to T accounts and determine the final balance in each account.