Question

Exercise 3-20 When the accounts of Metlock Inc. are examined, the adjusting data listed below are uncovered on December 31, the end of an annual fiscal period. 1. The prepaid insurance account shows a debit of $4,704, representing the cost of a 2-year fire insurance policy dated August 1 of the current year. 2. On November 1, Rent Revenue was credited for $1,716, representing revenue from a subrental for a 3-month period beginning on that date. 3. Purchase of advertising materials for $793 during the year was recorded in the Advertising Expense account. On December 31, advertising materials of $306 are on hand. 4. Interest of $708 has accrued on notes payable. Prepare the following in general journal form. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

(a) The adjusting entry for each item.

(b) The reversing entry for each item where appropriate.

Answer 1

1) Debit Credit
(a)   Insurance expense                $980.00   
Prepaid insurance   $980.00
   (Being the prepaid amount recognized as an expense at the year end )                   
                      
=   (4704/2 years X 12 months)= $196/month                   
=   $196 X 5 Months (August to December) =               $980.00   
                      
(b)    No entry $- $-   

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2) (a)   Rent Revenue                $572   
Unearned rent revenue                    $572
   (Being the rent not due but received)                      
   $1,716/3=   $572               
                      
(b)   Unearned rent revenue               $572   
Rent revenue $572
   (Being the entry reversed at year end)                   

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3)                       
(a)   Advertisment expense                $487.00   
Advertisment material                    $487.00
   (Being the amount recorded as expense for material used during the year )                  
   $793-$306=   $487.00

(b) No entry 0 0   

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4)                      
(a)   Interest expense               $708.00   
Interest payable                    $708.00
   (Being the amount accrued as interest)                   
(b) No entry 0 0

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