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

Question

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

Answers

Concepts and reason

Journalizing is the process of recording the transactions from the source documents into a record called Journal. These transactions are recorded in the order of their date.

Journal entry is used to record occurrence of the transaction.

Journal entries are prepared on the double entry system of accounting. That is for every debit there should be equal credit.

Under accrual system of accounting the expenses should be matched with the revenue in the period in which, they are incurred to earn such revenue.

So, adjusting entries are prepared at the end of the period before preparing the adjusted trail balance. Thus, these adjusting entries lay the foundation for preparation of adjusted trail balance, the income statement and the balance sheet.

Fundamentals

Adjusting journal entries are journal entries made at the end of accounting period. Adjustments are made to accounting books, so as to maintain them as per the accrual system of accounting.

Adjustments are required for transactions that are incomplete at the end of the accounting period.

Adjusting entries will affect at least one Account in income statement and balance sheet.

Cash account is not affected in adjustment entries.

1.

Working note:

Amount of depreciation per month is $400.

So, the total amount of depreciation for total three months is $1,200 ($400 × 3 months).

Prepare the adjusting journal entry to record the depreciation expense as shown below:

Accounts title and explantion Debit (S) $1,200 Credit (S) Date Mar.31 Depreciation expense Accumulated depreciation - Equipme

2.

Working note:

Amount of unearned revenue at the beginning is $9,900.

Amount of rent earned during the quarter is $3,300 ($9,900 × 1/3).

Prepare the adjusting journal entry to record the rent revenue earned as shown below:

Accounts title and explantion Unearned Rent revenue Debit (S) Credit (S) Date Mar.31 $3,300 Rent revenue $3,300 (To record th

3.

Prepare the adjusting journal entry to record the interest expense as shown below:

Date Mar.31 Accounts title and explantion Interest expense Interest payable (To record the interest expense) Debit (S) Credit

4.

Working note:

Beginning supplies is $2,800.

Ending supplies on hand is $700.

Difference between the beginning and ending supplies is the amount of supplies used during the year. That is $2,100($2,800 - $700).

Prepare the adjusting entry for supplies expense as shown below:

Accounts title and explantion Debit (S) Credit (S) Date Mar.31 Supplies expense $2,100 Supplies $2,100 (To record the usage o

5.

Working note:

Amount of insurance expired per month is $200.

So, the total amount of insurance expired for total three months is $600 ($200 × 3 months).

Prepare the adjusting journal entry to recognize the prepaid insurance expired as shown below:

Accounts title and explantion Insurance expense Prepaid insurance (To record the prepaid insurance expired) Debit (S) Credit

Ans: Part 1

Accounts title and explantion Debit (S) $1,200 Credit (S) Date Mar.31 Depreciation expense Accumulated depreciation - Equipme

Part 2

Accounts title and explantion Unearned Rent revenue Debit (S) Credit (S) Date Mar.31 $3,300 Rent revenue $3,300 (To record th

Part 3

Date Mar.31 Accounts title and explantion Interest expense Interest payable (To record the interest expense) Debit (S) Credit

Part 4

Accounts title and explantion Debit (S) Credit (S) Date Mar.31 Supplies expense $2,100 Supplies $2,100 (To record the usage o

Part 5

Accounts title and explantion Insurance expense Prepaid insurance (To record the prepaid insurance expired) Debit (S) Credit


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