P5-8 (Inferring adjusting journal entriesfrom changes in T-account balances) Beta Alloys made the following adjusting journal entries on December 31, 1996. Journal entry explanations have been omitted. 1. Wage Expense 10,000 5. Depreciation Expense 20,000 Wages Payable 10,000 Accum. Depr. 20,000 2. Insurance Expense 5,000 6. Supplies Expense 8,000 Prepaid Insurance 5,000 Supplies Inventory 8,000 3. Interest Receivable 1,000 7. Unearned Subsc. Rev. 2,000 Interest Revenue 1,000 Subscription Revenue 2,000 4. Unearned Rent Rev. 6,000 Rent Revenue 6,000 REQUIRED: Classify each adjusting entry as either an accrual adjustment (A) or a cost expiration adjust¬ ment (C), and indicate whether each entry increases (+), decreases (—) or has no effect (NE) on assets, liabilities, stockholders’ equity, revenues, and expenses. Organize your answer in the following way. The first journal entry has been done for you. Stockholders’ Entry Classification Assets Liabilities Equity Revenues Expenses (1) A NE + NE + The following information is available for M&M Johnson, Inc. Prepare the adjusting journal entries necessary on December 31, 1996.

a. The December 31, 1996 Supplies Inventory balance is $85,000. A count of supplies reveals that the company actually has $30,000 of supplies on hand.

b. As of December 31, 1996 Johnson, Inc. had not paid the rent for December. The monthly rent is $2,400.

c. On December 20, 1996 Johnson collected $18,000 in customer advances for the subse¬ quent performance of a service. Johnson recorded the $18,000 as unearned revenue, and as of December 31 two-thirds of the service had been performed.

d. The total cost ofJohnson’s fixed assets is $500,000. Johnson estimates that the assets have a useful life of ten years and uses the straight-line method of depreciation.

e. Johnson borrowed $10,000 at an annual rate of 12 percent on July 1, 1996. The first inter¬ est payment will be made on January 1, 1997.

f. Johnson placed several ads in local newspapers during December. On December 31 the company received a $28,000 bill for the ads, which was not recorded at that time. g. On July 1, 1996 Johnson paid the premium for a one-year life insurance policy. The $350 cost of the premium was capitalized when paid. The following information is available for Derrick Company. Prepare the adjusting journal entries that gave rise to the changes indicated. Account T-account Balance Before Adjustments T-account Balance After Adjustments Prepaid Rent 14,500 11,800 Prepaid Insurance 8,500 7,800 Accumulated Depreciation 36,000 38,400 Salaries Payable 1,300 2,500 Unearned Revenues 800 600 Fees Earned 87,600 87,800 Rent Expense 6,500 9,200 Insurance Expense 5,500 6,200 Depreciation Expense 0 2,400 Salary Expense 3,500 4,700 Chapter 5 The Mechanics of Financial Accounting 247