Question

Question :Consider the following independent situations at December 31: a. On October 1, a business collected \(3,000 rent in advance, debiting Cash and crediting Unearned Revenue. The tenant was paying one year’s rent in advance. On December 31, the business must account for the amount of rent it has earned. b. Salaries expense is \)1,800 per day—Monday through Friday—and the business pays employees each Friday. This year, December 31 falls on a Thursday. c. The unadjusted balance of the Office Supplies account is \(3,000. Office supplies on hand total \)1,900. d. Equipment depreciation was \(500. e. On April 1, when the business prepaid \)4,320 for a two-year insurance policy, the business debited Prepaid Insurance and credited Cash. Journalize the adjusting entry needed on December 31 for each situation. Use the letters to label the journal entries

Short answer

Adjusting entries are as follows:

Transactions	Accounts and Explanation	Debit	Credit
(a)	Unearned Revenue	$750
	Rent Revenue		$750
	To record service revenue earned
(b)	Salaries Expense	$7,200
	Salaries Payable		$7,200
	To record accrued salaries expense
(c)	Supplies Expense	$1,100
	Office Supplies		$1,100
	To record office supplies used
(d)	Depreciation Expense—Equipment	$500
	Accumulated Depreciation—Equipment		$500
	To record depreciation on equipment
(e)	Insurance Expense	$1,620
	Prepaid Rent		$1,620
	To record insurance expense

Step-by-step solution

Step-by-Step-SolutionStep1: Calculation of Rent Revenue

Rent revenue is calculated as follows:

$$\begin{gathered} \mathbf{RentRevenue}\mathbf{=}\mathbf{AmountReceived}\mathbf{\times }\frac{\mathbf{NumberofMonthsExpired}}{\mathbf{TotalMonthsofRentPaid}} \\ \mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{3}}{\mathbf{12}} \\ \mathbf{=}\mathbf{\$}\mathbf{750} \end{gathered}$$

Calculation of Salaries Expense

Salaries expense is calculated as follows:

$$\begin{gathered} \mathbf{SalariesExpense}\mathbf{=}\mathbf{SalariesPerDay}\mathbf{\times }\mathbf{NumberofDaysExpired} \\ \mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{800}\mathbf{\times }\mathbf{4} \\ \mathbf{=}\mathbf{\$}\mathbf{7}\mathbf{,}\mathbf{200} \end{gathered}$$

Calculation of Office Supplies Used

Office Supplies Used is calculated as follows:

$$\begin{gathered} \mathbf{OfficeSuppliesUsed}\mathbf{=}\mathbf{OfficeSuppliesBalanceBeforeAdjustment}-\mathbf{OfficeSuppliesonHand} \\ \mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{000}-\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{900} \\ \mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{100} \end{gathered}$$

Calculation of Insurance Expense

Insurance expense is calculated as follows:

$$\begin{gathered} \mathbf{InsuranceExpense}\mathbf{=}\mathbf{AmountPaid}\mathbf{\times }\frac{\mathbf{NumberofMonthsExpired}}{\mathbf{TotalMonthsofInsurancePaid}} \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{320}\mathbf{\times }\frac{\mathbf{9}}{\mathbf{24}} \\ \mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{620} \end{gathered}$$