On June 30, the end of the current fiscal year, the following information is available to Sterling

Question:

On June 30, the end of the current fiscal year, the following information is available to Sterling Company’s accountants for making adjusting entries:

a. Among the liabilities of the company is a mortgage payable in the amount of $240,000. On June 30, the accrued interest on this mortgage amounted to

$12,000.

b. On Friday, July 2, the company, which is on a five-day workweek and pays employees weekly, will pay its regular salaried employees $19,200.

c. On June 29, the company completed negotiations and signed a contract to provide services to a new client at an annual rate of $3,600.

d. The Supplies account shows a beginning balance of $1,615 and purchases during the year of $3,766. The end-of-year inventory reveals supplies on hand of $1,186.

e. The Prepaid Insurance account shows the following entries on June 30:

Beginning Balance $1,530 January 1 2,900 May 1 3,366 The beginning balance represents the unexpired portion of a one-year policy purchased the previous year. The January 1 entry represents a new oneyear policy, and the May 1 entry represents the additional coverage of a three-year policy.

f. The following table contains the cost and annual depreciation for buildings and equipment, all of which were purchased before the current year:

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g. On June 1, the company completed negotiations with another client and accepted a payment of $21,000, representing one year’s services paid in advance. The $21,000 was credited to Services Collected in Advance.
h. The company calculates that as of June 30 it had earned $3,500 on a $7,500 contract that will be completed and billed in August.
i. Federal income taxes for the year are estimated to be $7,500.
Required 1. Prepare adjusting entries for each item listed above.
2. User insight: Explain how the conditions for revenue recognition are applied to transactions c and h.
Determining Adjusting Entries, Posting to T Accounts, and Preparing an Adjusted Trial Balance