Question

The following transactions occurred during the year ending December 31, 2021, for the Blue Velvet Company. Record the December 31, 2021 adjusting entry related to each of these transactions.

1. On January 1, 2021, Blue Velvet purchased office equipment for $61,000. The equipment is estimated to have a five-year useful life and salvage value of 1,000. Blue Velvet will use straight-line depreciation.

2. On October 1, 2021, Blue Velvet lent $85,000 to another company. A note was signed with principal and 6% interest to be paid on September 30, 2022.

3. On November 1, 2021, the company paid its landlord $7,800 representing rent for the months of November through January. Prepaid rent was debited.

4. On August 1, 2021, collected $13,800 in advance rent from another company that is renting a portion of Blue Velvet’s factory. The $13,800 represents one year’s rent and the entire amount was credited to deferred rent revenue.

5. Blue Velvet began the year with $2,600 in its asset account, supplies. During the year, $7,100 in supplies were purchased and debited to supplies. At year-end, supplies costing $3,550 remain on hand.

Answer 1

No	Date	Account Titles and Explanation	Debit	Credit
1	Dec 31	Depreciation Expense	12,000
		Accumulated Depreciation		12,000
		($61,000 - $1,000)/5 Years
2	Dec 31	Interest Receivable	1,275
		Interest Revenue		1,275
		($85,000 x 6% x 3/12)
3	Dec 31	Rent Expense	5,200
		Prepaid Rent		5,200
		($7,800 x 2/3)
4	Dec 31	Deferred Rent Revenue	5,750
		Rent Revenue		5,750
		($13,800 x 5/12)
5	Dec 31	Supplies Expense	6,150
		Supplies		6,150
		($2,600 + $7,100 - $3,550)