Question

Among other items, the partial unadjusted trail balance of Filmblaster, Inc., a movie rental company at December 31 of the current year includes the following unadjusted account balances: Filmblaster, Inc. Partial Unadjusted Account Balance December 31 Accounts Balance Prepaid Insurance $19800 Prepaid Rent $1632 Supplies $4020 Equipment $17000 Accumulated Depreciation - Equipment $1700 Examination of the records shows that adjustments should be made for the following items, Prepare the annual year end adjusting journal entries at December 31: a) of the Prepaid Insurance in the unadjusted trail balance, $5000 is for coverage during the months after December 31st of the current year. Date Description Debit Credit Dec 31 b) The balance in the Prepaid Rent account is for a 12-month period that started November 1 of the current year. Date Description Debit Credit

Answer 1

	Date	Description	Debit	Credit
a)	Dec 31	Insurance Expenses - Expenditure related to current year	$   13,800.00
		Prepaid Insurance - Credit the expired portion of insurance		$   13,800.00
	Note: The Prepaid Insurance relating to period after current year is $ 5,000. The existing prepaid insurance balance is $ 19,800. So the expired portion of insurance balance is $ 13,800 (i.e,19,800 - 5,000)
	Date	Description	Debit	Credit
b)	Dec 31	Rent Expenses - Current period 2months rent is treated as expense	$        272.00
		Prepaid rent - The expired portion of rent is credited		$        272.00
	Note: The Prepaid Rent for 12 months from November of current year is $ 1,632. The expense relating to current year is of 2 months i.e, 1632/12*2 =$ 272.
	Date	Description	Debit	Credit
c)	Dec 31	Accrued Interest or Interest Receivable	$        700.00
		Interest Income		$        700.00
	Note: Interest earned but not yet received is a receivable and hence asset. The interest earned is an income for the current period
	Date	Description	Debit	Credit
d)	Dec 31	Supplies Consumed Expense	$     2,400.00
		Supplies - Stock/ Asset		$     2,400.00
	Note: The total supplies available as per unadjusted trail balance is $ 4,020. Out of such supplies $2,040 worth supplies are consumed during the year and hence expense for the period

	Date	Description	Debit	Credit
e)	Dec 31	Depreciation Expense	$     1,700.00
		Accumulated Depreciation		$     1,700.00
	Note: Assumming that the year 2014 is the previous year and this is second year after the asset purchase. This is because the trail balance shows accumulated depreciation is $ 1,700 (which means 1 year depreciation is already charged.)