# Basic Accounting Exercise – Adjusting Entries

### Exercise Condition:

The ledger of Piper Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared.

• Prepaid Insurance \$ 3,600
• Supplies 2,800
• Equipment 25,000
• Accumulated Depreciation—Equipment \$ 8,400
• Notes Payable 20,000
• Unearned Rent 9,900
• Rent Revenue 60,000
• Interest Expense –0–
• Wages Expense 14,000

An analysis of the accounts shows the following:

1. The equipment depreciates \$400 per month.

2. One-third of the unearned rent was earned during the quarter.

3. Interest of \$500 is accrued on the notes payable.

4. Supplies on hand total \$700.

5. Insurance expires at the rate of \$200 per month.

First – entries for the adjustments:

1. D Depreciation expenses \$400*3=\$1,200
_________C Depreciation – Equipment \$1,200

2. D Unearned rent revenue \$9900/3=\$3,300
_________C Rent revenue \$3,300

3. D Interest expenses \$500
_________C Interest payable \$500

4. D Supplies expenses \$2,800 (in supplies account before adjustments)-\$700 (on hand actual)=\$2,100
__________C Supplies \$2,100

5. D Insurance expense \$200*3=\$600
__________C Prepaid insurance \$600

Next step, balances of the accounts after adjustments:

 Account D C Prepaid insurance \$3,000 Supplies \$700 Equipment \$25,000 Accumulated depreciation equipment \$9,600 Notes payable \$20,000 Unearned rent \$6,600 Rent revenue \$63,300 Interest expenses \$500 Wages expenses \$14,000 Depreciation expenses \$1,200 Supplies expenses \$2,100 Insurance expenses \$600