Burke Bros. began operations on January 1, 2014. Its fiscal year end is December 31 and it prepares financial statements and adjusts its accounts annually. Selected transactions from 2014 follow:

1. On January 9, bought office supplies for $2,950 cash. A physical count on December 31, 2014, revealed $715 of supplies still on hand.

2. Purchased a $4,920, one-year insurance policy for cash on March 1. The policy came into effect on this date.

3. On June 1, purchased equipment for $31,200 cash. The equipment has an estimated eight-year useful life.

4. Rented equipment from Abe's Rentals for a six-month period effective September 1, 2014, for $275 per month and paid cash for the full amount.

5. Rented unused office space to Negara Madman for an eight-month period effective October 1, 2014, for $325 per month and collected cash from Negara for the full amount.

6. On November 15, received a $500 cash payment from each of five clients for services to be provided in the future (total 5 $2,500). As at December 31, services had been performed for three of the clients.

Instructions

(a) Prepare a journal entry to record transactions 1 to 6. All prepaid costs should be recorded in asset accounts.

All revenue collected in advance of providing services should be recorded as liabilities.

(b) An adjusting entry is required for each of these transactions at December 31, 2014. Using the format shown in

E3-3, prepare the following:

1. A basic analysis and a debit-credit analysis of the required adjustment.

2. The adjusting journal entry.

(c) Post the transactions and adjusting entries to T accounts and calculate the fi nal balance in each account.

(Posting to the Cash account is not necessary.)

TAKING IT FURTHER Could Burke Bros. avoid the need to record adjusting entries by originally recording items 1 through 4 as expenses, and items 5 and 6 as revenues? Explain.