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 $3,850 balance. During 2019, the company purchased supplies for $15,901, which was added to the Office Supplies account. The inventory of supplies available at December 31, 2019, totaled $3,388 b. An analysis of the company's insurance policies provided the following facts. Policy Months of Coverage Date of Purchase April 1, 2017 April 1, 2018 August 1, 2019 24 B с 36 12 Cost $10,464 9,216 8.064 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 $2,650 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 $730,000 and is expected to have a $45,000 salvage value at the end of its predicted 35-year life. Annual depreciation is $19,571. e. Since the company is not large enough to occupy the entire building it owns, it rented space to a tenant at $2,800 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 $2,537 per month. The fenant 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 cand e. Complete this question by entering your answers in the tabs below.

Answer 1

Q-1) Adjusting entries as of 31 December 2019

S.no Credit Debit 16,363 a Account title Office supplies expense Office supplies (To record office supplies consumed during the year) 16,363 b 7,740 7,740 Insurance expense Prepaid Insurance (To record expense on insurance for the year) C 5,300 5,300 Salaries expense Salaries payable (To record salaries payable for 30th and 31st December 2019) d 19,571 Deperciation expense Accumulated Depreciation (To record depreciation on Building) 19,571 e 2,800 2,800 Rent receivable Rent earned (To record rent to be received for December 2019) 5,074 5,074 nearr rent account Rent earned (To record rent earned for Novemeber and December 2019)

Notes -

1.

Particulars Opening inventory balance $ 3,850 Add-Purchases Less-Closing inventory balance Inventory used during the year 15,901 3,388 16,363

2.Since all the insurance premium paid has been accounted under Prepaid Insurance account, the expense for the year has to be debited by crediting the prepaid insurance account

Policy А B Date of purchase 1-Apr-17 1-Apr-18 Cost (a) 10,464 9,216 Coverage (b) 24 36 Coverage Coverage till during 2019 31-Mar-19 Jan-Mar 31-Mar-21 Jan-Dec Coverage Expense during 2019 for 2019 (Months) (c) (a/bxc) 3 1,308 12 3,072 C 1-Aug-19 8,064 12 31-Jul-20 Aug-Dec 5 3,360 7,740

3.The salary of the workers for Monday and Tuesday alone would be accounted as payable as at 31st Dec 2019 (2,650 per day x 2 days = 5,300)

4.The depreciation expense should be accumulated year on year and adjusted against the cost of the asset for Balance sheet presentation purposes (depreciation for the year has been given in the question)

5.The rent payable by Tenant for December should be accounted as receivable in the books of Arnez Company (2,800 per month)

6.The rent paid in advance pertaining to 2019 should be accounted as income (2,537 per month x 2 months (November and December) = 5,074)

Q-2) Subsequent cash transaction in 2020

Credit Date Account title 6-Jan-20 Salaries expense Salaries payable Cash (To record payment of salaries) Debit 7,950 5,300 13,250 5,600 15-Jan-20 Cash Rent earned account Rent receivable (To record receipt of rent income of ecember 2019 and January 2020) 2,800 2,800

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