Reference no: EM132556071
KellCo is a sole proprietorship that provides cleaning services to office buildings. It is the end of KellCo's fiscal year (12/31X1 and you have been provided the following information to make the appropriate journal entries to bring the accounting system up to date.
A. On 10/15 the company entered into a one year contract with the SkyWay property management company to provide cleaning services for one of its large office buildings. The total contract was for $120,000 per year. KellCo required the SkyWay property management company to pay a 10% deposit of the total contract. On 10/15/X1 KellCo received a check for $12,000 as a deposit on the contract. On that date, the bookkeeper debited Cash and credited Unearned Revenue to record the transaction. At the end of the fiscal year, KellCo had provided 15% of the services called for in the contract. At the end of the fiscal year, 12/31/X1, no journal entries had been made to the accounting system concerning the contract except for the initial receipt of the deposit.
B. When KellCo started the business on 8/1/X1 the company purchased a one-million-dollar liability insurance policy from their insurance broker. The cost of the policy for one full year was $36,000 which the company paid by check on that date. The bookkeeper debited Prepaid Insurance Expense and credited Cash for the amount paid. No other journal entries had been made concerning this transaction at the end of the fiscal year.
C. At the end of the fiscal year, KellCo owed its employees four days of wages in the amount of $50,000 which would be paid next year. No entry has been made to record this fact.
D. KellCo's CPA has calculated that the depreciation on the company's assets amounted to $15,000 for the fiscal year. No entry had been made to record this fact.
E. On 4/1/X1, KellCo secured a line of credit for $75,000 with their bank. The terms of the loan required that the loan principal and interest at a rate of 10% will be paid in the next fiscal year on 3/31/X2. At the end of the current fiscal year, 12/31/X1, the company owed interest of $3,500 to its bank. No journal entry had been made in the current year to record this fact.
Question 1: from the information provided above make the required journal entries on 12/31/X1. In addition, as a description of the journal entry, site the principle that would have been violated if the adjusting entry had not been made
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