Question

The following transactions occurred during December 31, 2018, for the Falwell Company.

1. A three-year fire insurance policy was purchased on July 1, 2018, for $11,880. The company debited insurance expense for the entire amount.
2. Depreciation on equipment totaled $12,000 for the year.
3. Employee salaries of $16,000 for the month of December will be paid in early January 2019.
4. On November 1, 2018, the company borrowed $180,000 from a bank. The note requires principal and interest at 12% to be paid on April 30, 2019.
5. On December 1, 2018, the company received $3,900 in cash from another company that is renting office space in Falwell’s building. The payment, representing rent for December and January, was credited to deferred rent revenue.

Prepare the necessary adjusting entries for each of the above situations. Assume that no financial statements were prepared during the year and no adjusting entries were recorded. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

Necessary adjusting entries are as follows:

Date December. 31, 2018 Prepaid Insurance Account Title and explanation Debit Credit $9,833 Insurance expense $9,833 (to record adjustment to Insurance expense (11880 *30/36) December. 31, 2018 Depreciation expense Equipment $12,000 Accumulated depreciation Equipment $12,000 (to record depreciation expense of equipment for the year) December. 31, 2018 Salaries expense $16,000 Salaries payable $16,000 (to record accrual of salarie:s December. 31, 2018 Interest expense $3,600 Interest payable $3,600 (to record accrual of interest expense-180000 * 12% * 2/12 Deferred rent revenue (to record rent revenue earned $3900/2 December. 31, 2018 $1,950 Rent Revenue $1,950