Question

Return 2 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. 11.11 points a. The Office Supplies account started the year with a $4,100 balance. During 2019, the company purchased supplies for $16.933. which was added to the Office Supplies account. The inventory of supplies available at December 31, 2019, totaled $3,608 b. An analysis of the company's insurance policies provided the following facts. Months of Coverage 24 Policy A B с Date of Purchase April 1, 2017 April 1, 2018 August 1, 2019 Cost $15,840 14,616 13,440 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 $2,950 in salaries each working day. They are pold 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 $620,000 and expected to have a $45,000 salvage value of the end of its predicted 35-year life. Annual depreciation is $16,429. e. Since the company is not large enough to occupy the entire building it owns, it rented space to a tenant at $3,400 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 $3,080 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.

Answer 1

Adjusting entries-

1) Supplies Expense Dr. 17,425

To Supplies Account 17,425

(Being amount of supplies being used during the year)

Calculation of usage of supplies during the year = Opening balance + Purchases - Closing Balance

= 4,100 + 16,933 - 3,608

= $17,425

2) Insurance Expense Dr. 6,852

To Prepaid Insurance 6,852

(Being Insurance expense for the year recorded)

Calculation of prepaid insurance expired during the year =

Policy A = 3 * 15,840 / 24 = 1,980

Policy B = 12 * 14,616 / 36 = 4,872

Total Insurance expense for the year = 6,852

Policy C was taken in the year so now we have to record the entry for the same by debiting Prepaid Insurance for the remaining period of 7 months(7*13,440/12)

Prepaid Insurance Dr. 7,840

To Insurance Expense 7,840

(Being Insurance expense carried forward)

3) Till December 31, Tuesday company has to pay the dues for two days only, hence they shall be credited to Salaries Payable Account.( 2* 2,950)

Salaries Expense Dr. 5,900   

To Salaries Payable 5,900

Subsequent cash entry would be

Salaries Payable Dr. 5,900

Salaries Expense Dr. 8,850

To Cash 14,750

(Being cash paid for salaries)

4) Depreciation Expense Dr. 16,429

To Accumulated Depreciation 16,429

(Being Depreciation expense recorded)

5) Rent Receivable Dr. 3,400

To Rent Earned     3,400

(Being rent receivable recorded)

Subsequent cash entry-

Cash Dr. 6,800

To Rent Receivable 3,400

To Rent Earned        3,400

(Being rent received)

6) Unearned Rent Dr. 6,160

To Rent Earned    6,160

(Being two months rent recognised)