Question

Natsu Company’s annual accounting period ends on October 31, 2017. The following information concerns

the adjusting entries that need to be recorded as of that date. (Entries can draw from the following

partial chart of accounts: Cash; Rent Receivable; Office Supplies; Prepaid Insurance; Building;

Accumulated Depreciation—Building; Salaries Payable; Unearned Rent; Rent Earned; Salaries Expense;

Office Supplies Expense; Insurance Expense; Depreciation Expense—Building.)

a. The Office Supplies account started the fiscal year with a \(600 balance. During the fiscal year, the

company purchased supplies for \)4,570, which was added to the Office Supplies account. The supplies

available at October 31, 2017, totaled \(800.

b. An analysis of the company’s insurance policies provided the following facts.

The total premium for each policy was paid in full (for all months) at the purchase date, and the

Prepaid Insurance account was debited for the full cost. (Year-end adjusting entries for Prepaid

Insurance were properly recorded in all prior fiscal years.)

c. The company has four employees, who earn a total of \)1,000 for each workday. They are paid each

Monday for their work in the five-day workweek ending on the previous Friday. Assume that October

31, 2017, is a Monday, and all four employees worked the first day of that week. They will be paid

salaries for five full days on Monday, November 7, 2017.

d. The company purchased a building on November 1, 2014, that cost \(175,000 and is expected to have

a \)40,000 salvage value at the end of its predicted 25-year life. Annual depreciation is \(5,400.

e. Since the company does not occupy the entire building it owns, it rented space to a tenant at

\)1,000 per month, starting on September 1, 2017. The rent was paid on time on September 1, and

the amount received was credited to the Rent Earned account. However, the October rent has not

been paid. The company has worked out an agreement with the tenant, who has promised to

pay both October and November rent in full on November 15. The tenant has agreed not to fall

behind again.

f. On September 1, the company rented space to another tenant for $725 per month. The tenant paid

five months’ rent in advance on that date. The payment was recorded with a credit to the Unearned

Rent account.

Required

1. Use the information to prepare adjusting entries as of October 31, 2017.

2. Prepare journal entries to record the first subsequent cash transaction in November 2017 for parts c

and e.

Short answer

The cash account is debited with $2,000.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of closing entry

Closing entry is the entry passed at the end of the period to close the temporary accounts.

Adjusting entries

Date	Particulars	Debit	Credit
November 7	Salaries Expenses	$5,000
	Cash		$5,000
	(Payment of salaries)
November 15	Cash	$2,000
	Rent Revenue		$1,000
	Rent Receivable		$1,000
	(Entry for the rent received)