Problem 4-2 Annual Adjustments

Palmer Industries prepares annual financial statements and adjusts its accounts only at the end of

the year. The following information is available for the year ended December 31, 2012:

a. Palmer purchased computer equipment two years ago for $15,000. The equipment has an

estimated useful life of five years and an estimated salvage value of $250.

b. The Office Supplies account had a balance of $3,600 on January 1, 2012. During 2012,

Palmer added $17,600 to the account for purchases of office supplies during the year. A

count of the supplies on hand at the end of December 2012 indicates a balance of $1,850.

c. On August 1, 2012, Palmer created a liability account, Customer Deposits, for $24,000. This

sum represents an amount that a customer paid in advance and that will be earned evenly by

Palmer over a six-month period.

d. Palmer rented some office space on November 1, 2012, at a rate of $2,700 per month. On

that date, Palmer recorded Prepaid Rent for three months