Record adjustments. (LO 1, 2, 3)

The following is a list of financial statement items from Sugar \& Spice Cookie Company as of December 31, 2007:

Additional information:
1. The company paid a \(\$ 7,200\) premium on a 3-year business insurance policy on July 1,2006 .
2. Sugar \& Spice borrowed \(\$ 200,000\) on January 2,2007 , and must pay \(11 \%\) interest on January 2,2008 , for the entire year of 2007.
3. The books show that \(\$ 60,000\) of the unearned subscription revenue has now been earned.
4. The company paid 10 months of rent in advance on November 1, 2007.
5. The company will pay wages of \(\$ 2,000\) for December 31 to employees on January 3, 2008 .
\section*{Required}

a. Use the accounting equation to show the adjustments that must be made prior to the preparation of the financial statements for the year ended December 31, 2007.

b. Calculate the account balances that would appear on the financial statements for the year ended December 31, 2007.

Transcribed Image Text:

Prepaid insurance $ 6,000 Prepaid rent expense 10,000 Wages expense 25,000 Uncarned subscription revenue 70,000 Interest expense 38,000