Prepare adjusting entries.
A review of the ledger of Monkey Ltd at 30 June 2019 producedthe following data relating to the preparation of annual adjustingentries:
1. Prepaid insurance $37260: the entity has separate insurancepolicies on its buildings and its motor vehicles. Policy B4564 onthe building was purchased on 1 January 2018 for $33300. The policyhas a term of 3 years. Policy A2958 on the vehicles was purchasedon 1 July 2018 for $9510. This policy has a term of 2 years.
2. Subscriptionrevenue received inadvance $135200:theentitybegansellingmagazine subscriptions on 1 April 2019 on an annual basis.The selling price of a subscription is $130. A review ofsubscription contracts reveals the following:
Subscription start date Number ofsubscriptions
1 April 200
1 May 300
1 June 540
1040
The annual subscription is for 12 monthly issues. The June magazinefor all of the subscriptions had been delivered to the subscribersat 30 June 2019.
3. Bank loan $100000: the loan was taken out on 1 April at anannual interest rate of 6%.
4. Salaries payable: There are eight salaried employees.Salaries are paid every Friday for the current week. Four employeesreceive a salary of $1050 each per week, and three employees earn$1350 each per week. 30 June is a Tuesday. Employees do not work onweekends. All employees worked the last 2 days of June.
Required
(a) Prepare the adjusting journal entries at 30 June 2019.
(b) Explain why the business would not recognise the fullsubscription revenue when the customers sign up for the magazinesand pay for the subscription.
