Question

Notes Problems Problem 2 Sneaker store Feet First prepares monthly financial statements for its bank. The November 30 and December 31, 2016 trial balances contained the following accounting information: Supplies Prepaid insurance Salaries payable Deferred rent revenue November 30 Debit Credit 1,500 6,000 10,000 2,000 December 31 Debit Credit 3,600 4,700 15,000 1.000 The following information is also known: a. The December income statement reported $2,000 in supplies expense. b. No insurance payments were made in December. c. $10.000 was paid to employees during December for salaries. d. On November 1, 2016, a tenant paid Feet First in advance for rent for the period November through January. Deferred rent revenue was credited. Required: 1. What was the cost of supplies purchased during December? 2. What was the adjusting entry recorded at the end of December for prepaid insurance?

Answer 1

Requirement 1:

Supplies, Dec 31	$3,600
Add: Supplies expense	$2,000
(Less): Supplies, Nov 30	($1,500)
Supplies purchased	$4,100

Requirement 2:

Date	Account title and explanation	Debit	Credit
Dec 31	Insurance Expense (6,00-4,700)	$1,300
	Prepaid insurance		$1,300
	[To record insurance expense]

Requirement 3:

Date	Account title and explanation	Debit	Credit
Dec.31	Salaries expense	$15,000
	Salaries payable		$15,000
	[To record accrued salaries expense]

Requirement 4:

Rent received on Nov.1

$3,000

Rent revenue recognized in December:

$1,000

Journal Entry:

Date	Account title and explanation	Debit	Credit
Dec.31	Deferred rent revenue	$1,000
	Rent revenue		$1,000
	[To record rent revenue from deferred rent]

Explanation:

Rent received from tenant for 3 months (Nov., Dec and Jan.). At the end of the Nov. balance on Deferred rent is $2,000 and At the end of the Dec. balance is $1,000. It means rent per month is $1,000 (2,000-1,000). So that rent received for 3 months is $3,000 and Every month rent revenue recognize to be $1,000.