For each of the following situations provide the necessary adjusting entries for Truax Ltd. (Truax) for the year ended December 31, 2014. (These situations are tricky. When preparing each adjusting entry compare what is recorded in the accounting system with what you think should be in the accounting system. Your adjusting entry should take the accounting system from

“what is” recorded to “what should be” recorded.)

a. On August 15, 2014, Truax received $180,000 as an advance for services to be rendered over the next 18 months. The services began on September 1, 2014, and will be provided equally each month of the contract. Truax Inc. recorded the transaction by debiting cash for $180,000 and crediting revenue for $180,000.

b. On July 2, 2014 Truax purchased a two-year insurance policy for $15,000 cash.

The company debited insurance expense for $15,000 and credited cash for $15,000.

c. Truax owns the rights to market products that use the name and images of some well-known entertainers. It in turn licenses those rights to other companies. The arrangements require the licensees to pay a percentage of sales to Truax every six months, on October 1 and April 1. On April 1, 2014 Truax received a cheque from one of its licensees for $23,000 for the six months ending March 31, 2014. The accountant debited cash and credited revenue for $23,000.