1. Comet Graphics Corporation prepares annual financial statements and therefore

Question

1. Comet Graphics Corporation prepares annual financial statements and therefore adjusts its accounts on December 31, 2010. The following information is available for year 2010:

i. Comet Graphics purchased supplies of $2,700 in January. At December 31, there was $1,500 of supplies on hand.

ii. The $17,000 note payable was issued on September 1, 2010. It is a 12%, 6-month note, so the interest for each month is 17,000*12%*(1/12)= $170. The company does not pay interest until the due date (Mar 1st, 2011).

iii. Comet Graphics company paid for a one-year insurance policy of $1,800. Coverage began on March 1, 2010.

iv. At December 31, Comet Graphics company determines that it has performed service of $1,000 for Water Corporation, although the company has not billed Water Corporation yet.

A. Journalize the appropriate adjusting entries on Dec 31, 2010.

Explanation / Answer

1-COST OF GOODS SOLD                  DEBIT         1200

CREDIT INVENTORY                                                             1200

2- INTEREST EXPENSE DEBIT    680

   CREDIT INTEREST PAYABLE               680

3- INSURANCE DEBIT                      1500

    PREPAID INSURANCE DEBIT    300

CREDIT CASH    1800

4- WATER CORPORATION DEBIT    1000

CREDIT SERVICES TO WATER CORP.    1000                

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