Question

Arnez Company's annual accounting period ends on December 31, 2019. The following information concerns the adjusting entries to be recorded as of that date. a. The Office Supplies account started the year with a $2,675 balance. During 2019, the company purchased supplies for $11,048, which was added to the Office Supplies account. The inventory of supplies available at December 31, 2019, totaled $2,354 b. An analysis of the company's insurance policies provided the following facts. Policy Date of Purchase April 1, 2017 April 1, 2018 August 1, 2019 Honths of Coverage 24 36 Cost $11,256 10,082 8,856 12 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 years.) c. The company has 15 employees, who earn a total of $1,750 in salaries each working day. They are paid each Monday for their work in the five-day workweek ending on the previous Friday. Assume that December 31, 2019, is a Tuesday, and all 15 employees worked the first two days of that week. Because New Year's Day is a paid holiday, they will be paid salaries for five full days on Monday January 6, 2020 d. The company purchased a building on January 1, 2019. It cost $665,000 and is expected to have a $45,000 salvage value at the end of its predicted 20-year life. Annual depreciation is $31,000. e. Since the company is not large enough to occupy the entire building it owns, it rented space to a tenant at $2,700 per month, starting on November 1, 2019. The rent was paid on time on November 1, and the amount received was credited to the Rent Earned account. However, the tenant has not paid the December rent. The company has worked out an agreement with the tenant, who has promised to pay both December and January rent in full on January 15. The tenant has agreed not to fall behind again f. On November 1, the company rented space to another tenant for $2,446 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. Assume no other adjusting entries are made during the year Required: 1. Use the information to prepare adjusting entries as of December 31, 2019 2. Prepare journal entries to record the first subsequent cash transaction in 2020 for parts cande

Answer 1

1.

	Date	General Journal	Debit	Credit
a.	Dec. 31, 2019	Office Supplies expense	11369
		Office Supplies ($2675 + $11048 - $2354)		11369
		(To record office supplies expense)
b.	Dec. 31, 2019	Insurance expense	8457
		Prepaid insurance		8457
		(To record insurance expense)
c.	Dec. 31, 2019	Salaries expense ($1750 x 2 days)	3500
		Salaries payable		3500
		(To record accrued salaries)
d.	Dec. 31, 2019	Depreciation expense	31000
		Accumulated depreciation-Building		31000
		(To record depreciation expense)
e.	Dec. 31, 2019	Rent receivable	2700
		Rent earned		2700
		(To record rent revenue accrued for December)
f.	Dec. 31, 2019	Unearned rent	4892
		Rent earned ($2446 x 2)		4892
		(To record rent earned for 2 months)

Working:

Policy	Date of Purchase	Months of Coverage	Cost $	Per month $	Months in 2019	Insurance expense $
A	April 1, 2017	24	11256	469	3	1407
B	April 1, 2018	36	10080	280	12	3360
C	August 1, 2019	12	8856	738	5	3690
						8457

2.

Date	Account Titles and Explanation	Debit	Credit
Jan. 6, 2020	Salaries payable	3500
	Salaries expense ($1750 x 3 days)	5250
	Cash (1750 x 5 days)		8750
	(To record salaries paid for week ended Jan. 3)
Jan. 15, 2020	Cash ($2700 x 2 months)	5400
	Rent receivable		2700
	Rent earned		2700
	(To record rent received for Dec. and Jan.)