5E - Intermediate Accounting (Kieso)

Question

 EXCEL (Adjusting Entries) The ledger of Duggan 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 Revenue                                                                                \)9,300

Rent Revenue                                                                                                  \(60,000

Interest Expenses                                                                            -0-

Salaries and Wages Expenses                                                   \)14,000 

An analysis of accounts shows the following.

1. The equipment depreciates \(250 per month.

2. One-third of the unearned rent was recognized as revenue during the quarter.

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

4. Supplies on hand total \(850

5. Insurance expires at the rate of \)300 per month.

Instructions

Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are Depreciation Expenses, Insurance Expenses, Interest Payable, and Supplies expenses. (Omit Explanations)

Step-by-Step Solution

Answer

The amount of accumulated depreciation calculated is $750.

Step 1: Meaning of Adjusting Entries

Adjusting entries are those journal entries that are made on the last day of an accounting period. Adjusting entries helps a company calculate exact revenue and expenses and it also helps to update the financial statements and fix an error.

Step 2: Adjusting entries on March 31

Date	Accounts Titles and Explanations	Debit	Credit
Mar 31	Depreciation Expenses	$750
	Accumulated Depreciation- Equipment		$750
	(Adjusting entries for quarterly depreciation on equipment)
Mar 31	Unearned Rent Revenue	$3100
	Rent Revenue		$3100
	(Adjusting entries for rent revenue earned)
Mar 31	Interest expenses	$500
	Interest payable		$500
	(Adjusting entries for accrued interest expenses)
Mar 31	Supplies Expenses	$1950
	Supplies		$1950
	(Adjusting entries for supplies consumed)
Mar 31	Insurance Expenses	$900
	Prepaid Insurance		$900
	(Adjusting entries for expired insurance for the quarter)

Step 3: Explanations:

1. Depreciation Expenses = ($250 × 3) =$750                                             

          *[quarterly depreciation = 3 months]

1. Unearned rent revenue = ($9300 × 1/3) = $3100

2. Insurance expenses = $500 (Given)

3. Supplies expenses (Supplies used in production) = ($2800 - $850) = $1950

4. Insurance expenses = ($300 × 3months) = $900

          *[quarterly insurance = 3months]