Question

Arnez Company’s annual accounting period ends on December 31, 2018. The following information concerns the adjusting entries to be recorded as of that date.

1. The Office Supplies account started the year with a $3,625 balance. During 2018, the company purchased supplies for $14,971, which was added to the Office Supplies account. The inventory of supplies available at December 31, 2018, totaled $3,190.
2. An analysis of the company's insurance policies provided the following facts.

Policy	Date of Purchase	Months of Coverage	Cost
A	April 1, 2016	24	$	11,832
B	April 1, 2017	36		10,584
C	August 1, 2018	12		9,432

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.)

3. The company has 15 employees, who earn a total of $3,000 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, 2018, 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, 2019.
4. The company purchased a building on January 1, 2018. It cost $845,000 and is expected to have a $45,000 salvage value at the end of its predicted 40-year life. Annual depreciation is $20,000.
5. Since the company is not large enough to occupy the entire building it owns, it rented space to a tenant at $2,700 per month, starting on November 1, 2018. 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.
6. On November 1, the company rented space to another tenant for $2,446 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.

Required:
1. Use the information to prepare adjusting entries as of December 31, 2018.
2. Prepare journal entries to record the first subsequent cash transaction in 2019 for parts c and e.

Answer 1

		Office Supplies used =3625+14971-3190	15406
		Policy A Expires onMarch 31,2018
		Policy B Expires onMarch 31,2020
		Policy C Expires on July 31,2019
		Insurance expense of Policy A (11832/24)*3	1479
		Insurance expense of Policy B (10584/36)*12	3528
		Insurance expense of Policy C (9432/12)*5	3930
		Total Insurance Expense	8937
		ADJUSTING ENTRY
		ACCOUNT TITLES	DEBIT	CREDIT
		Supplies Expense	$15,406
		Office Supplies		$15,406
		Insurance Expense	$8,937
		Prepaid Insurance		$8,937
		Salaries Expense	$6,000		(3000*2days)
		Salaraies Payable		$6,000
		Rent Receivable	$2,700
		Rent Earned		$2,700
		Depreciation Expense-Building	$20,000
		Accumulated Depreciation-Building		$20,000
		Unearned Rent	$4,892		(2446*2)
		Rent Earned		$4,892
	2	JOURNAL ENTRY FOR CASH TRANSACTIONS IN 2019
	Jan,6,2019	Salaries Expense	$9,000
		Salaraies Payable	$6,000
		Cash		$15,000
	Jan,15	Cash	$5,400
		Rent Receivable		$2,700
		Rent Earned		$2,700