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.
Task: prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are: Depreciation Expense, Insurance Expense, Interest Payable, and Supplies Expense.
Answer & Explanation:
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 |