Complete the following activity and save this file on your hard drive.Then submit your file to your instructor on Canvas.Journalize each of the following adjusting entries in the general journal below. Note that no adjusting entries have been made in the current year (compute your adjustments for the first six months of the year).The Trial Balance for Favell’s Ditch Digging Service Company at June 30 is as follows:FAVELL’S DITCH DIGGING SERVICE COMPANYTRIAL BALANCEJUNE 30CashPrepaid InsuranceSuppliesNotes ReceivableEquipmentUnearned FeesNotes PayableJ. Favell, CapitalDitch Digging Fees RevenueSalaries ExpenseGas and Oil ExpenseTotalsDebit$ 5,5003,6009001,50025,000Credit$ 2,0003,00019,90021,7009,200900$46,600======$46,600======Other data:1. Favell’s insurance policy was purchased on March 1 of the current year and will provide coverage for 2 years.2. Supplies were counted on June 30. There were $400 worth of supplies on hand.3. Notes Receivable represents a 9-month, 12% note issued on April 1 of the current year to a customer for services rendered.4. Equipment was purchased on January 1 of the current year. It is expected that the equipment will have a $1,000 salvage value at the end of its 6 year useful life. The company uses straight line depreciation.5. Unearned Fees represents a customer deposit received in May. In June, onefourth of the unearned fees were earned.6. The company has two employees who earn a total of $300 per day. Payroll is paid every Friday for the work performed each week. June 30 this year fell on a Thursday.7. Notes Payable represents a note owed to the bank. This note was established on May 1 of the current year and carries a term of 6-months, and an interest rate of 12%.General JournalDateAccount titleDebitCreditAnswer each of the following questions in your own words. (Do not plagiarize from the textbook or any other source.) I want to see what you have learned in Chapter 3.Question 1: You are visiting with a friend, Jerry Bidwell, who wants to start a new business. During discussions on forming the business, Jerry makes this statement:”Our business will have accounts receivable and accounts payable. It will also acquire a substantial amount of computers and equipment. Will it be acceptable to use the cash basis of accounting?”Prepare a response for Jerry.Question 2: “Adjusting entries are required by the cost principle of accounting.” Do you agree with this statement? Explain fully.Question 3: “Depreciation is a valuation process that results in the reporting of the fair value of the asset.” Do you agree with this statement? Explain fully.Question 4: Distinguish between the two categories of adjusting entries and identify the types of adjustments applicable to each category.Questions 5: Will an adjusting entry ever affect the asset account called “Cash?” Why or why not? Explain fully.
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