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12 709 On October 31, Pioneer Advertising receives $28,000 in cash and pells copa Company $72,000 for advertising services of $100,000 performed in October ADJUSTING JOURNAL ENTRIES (DEFERRALS AND ACCRUALS): Based on the information provided, make the period end adjusting journal entries for the following: 1. PREPARID EXPENSES Pioneer Advertising purchased advertising supplies costing $25,000 on October 5 Pioneer therefore debited the asset Supplies. This account shows a balance of $25,000 in the October 31 trial balance. An inventory count at the close of business on October 31 reveals that $10,000 of supplies are still on hand. Thus, the cost of supplies used is $15.000 (525,000 - $10,000), Slide 24 2. PREPARID EXPENSES On October 4, Pioneer Advertising paid $6,000 for a one-year fire insurance policy Coverage began on October 1. Pioneer debited the cost of the premium to Prepaid Insurance at that time. This account still shows a balance of $6,000 in the October 31 trial balance, Slide 25 3. PPD / DEFERRED EXPENSES Pioneer Advertising estimates depreciation on its office equipment to be $4.800 a year (cost $50,000 less salvage value $2,000 divided by useful life of 10 years), or $400 per month. Slide 27 4. UNEARNED REVENUES Pioneer Advertising received $12,000 on October 2 from R. Knox for advertising services expected to be completed by December 31. Pioneer credited the payment to Unearned Service Revenue. This liability account shows a balance of $12,000 in the October 31 trial balance. Based on an evaluation of the service Pioneer performed for Knox during October, the company determines that it should recognize $4,000 of revenue in October. Slide 30 5. ACCRUED REVENUE In October, Pioneer Advertising performed services worth $2,000 that were not billed to clients on or before October 31. Because these services are not billed, they are not recorded The accrual of unrecorded service revenue increases an asset account, Accounts Receivable. It also increases stockholders' equity by increasing a revenue account Service Revenue Slide 34 6 ACCRUED EXPENSES. Pioneer Advertising signed a three-month note payable in the amount of $50,000 on October 1. The note requires interest at an annual rate of 12 percent. Three factors determine the amount of the interest accumulation: (1) the face value of the note; (2) the interest rate, which is always expressed as an annual rate; and (3) the length of time the note is outstanding. For Pioneer, the total interest due on the $50,000 note at its maturity date three months' in the future is $1.500 ($50,000 * 12 * 3/12), or $500 for one month Slide 37 7. Assume that, based on past experience, Pioneer Advertising reasonably estimates a bad debt expense for the month of $1,600. Slide 39