Setter Company debits expense accounts when recording prepaid expenses; it credits revenues accounts when recording unearned receipts.
Question:
Setter Company debits expense accounts when recording prepaid expenses; it credits revenues accounts when recording unearned receipts. The following information was available on December 31, 1990, the end of the company's annual accounting period.
a. The Store Supplies account had a \(\$ 340\) debit balance at the beginning of the year, \(\$ 1,250\) of supplies were purchased during the year, and an inventory of unused supplies at the year-end totaled \(\$ 620\).
b. An examination of insurance policies showed two policies, as follows:
Insurance Expense was debited for the cost of each policy at the time of its purchase. However, the correct amount of Prepaid Insurance was recorded during the adjustment processes at the end of 1988 and 1989.
c. On October 15, 1990, Setter Company agreed to provide consulting services to a client and received advance payment of \(\$ 8,500\). At year-end, the client agreed that three fourths of the services had been provided.
d. The company occupies most of the space in its building but it also rents space to one tenant. The tenant agreed on November 1 to rent a small amount of space at \(\$ 750\) per month, and on that date paid three months' rent in advance.
e. The Office Supplies account had a \(\$ 550\) debit balance at the beginning of the year, and \(\$ 750\) of supplies were purchased during the year. A year-end inventory of office supplies indicated that supplies amounting to \(\$ 990\) had been used during the year.
\section*{Required}
Prepare adjusting journal entries dated December 31, 1990, prior to the preparation of annual financial statements. For item \((b)\), prepare a separate adjusting entry for each insurance policy.
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