(Learning Objective 3: Making accounting adjustments) Journalize the adjusting entry needed on December 31, the end of the current accounting period, for each of the following independent cases affecting Chicago Mercantile Services (CMS). Include an explanation for each entry.
a. Each Friday, CMS pays employees for the current week’s work. The amount of the payroll is $2,000 for a 5-day work week. The current accounting period ends on Tuesday.
b. CMS has received notes receivable from some clients for professional services. During the current year, CMS has earned accrued interest revenue of $1,100, which will be received next year.
c. The beginning balance of Supplies was $1,800. During the year, CMS purchased supplies costing $12,500, and at December 31 the inventory of supplies on hand is $2,900.
d. CMS is conducting market research, and the client paid CMS $20,000 at the start of the project. CMS recorded this amount as Unearned Service Revenue. The research will take several months to complete. CMS executives estimate that the company has earned three-fourths of the revenue during the current year.
e. Depreciation for the current year includes Equipment, $6,300; and Building, $3,700. Make a compound entry.
f. Details of Prepaid Insurance are shown in the account:
CMS pays the annual insurance premium (the payment for insurance coverage is called a premium) on September 30 each year. At December 31, $2,700 is still prepaid.