QUESTION 3

Property Management Professional Ltd. provides building management services to owners of the office buildings and shopping centers, The company closes its accounts at the end of the calendar year. The manner in which the company has recorded several transactions occurring during 2019 is described as follows:

A. On 1 September, received advance payment from a shopping center for property management services to be performed over the three-month period beginning 1 September. The entire amount received was credited directly to a revenue account.

B. On 1 December, received advance payment from the same customer described in part A for service to be rendered over the three-month period beginning 1 December. This time, the entire amount received was credited to an unearned revenue account.

C. Rendered management services for many customers in December. Normal procedure is to record on the date the customer is billed, which is early next month after the services have been rendered.

D. On 15 December, made full payment for a one-year insurance policy that goes into effect on 2 January 2020. The cost of the policy was debited to Unexpired Insurance.

E. Numerous purchases of equipment were debited to asset accounts, rather than to expense accounts.

F. Payroll expense is recorded when employees are paid, Payday for the last two weeks of December falls on 2 January 2020.

Required:

For each item above (except A-which has been selected as a sample and its answer is provided at the end of this question), explain whether an adjusting entry is needed at 31 December 2019, and state the reason for your answer. If you recommend an adjusting entry, explain the effects your entry would have on assets, liabilities, equity, revenue and expenses in the 2019 financial statement.