Question

Arnez Company’s annual accounting period ends on December 31, 2017. The following information concerns the adjusting entries to be recorded as of that date.

1. The Office Supplies account started the year with a $2,975 balance. During 2017, the company purchased supplies for $12,287, which was added to the Office Supplies account. The inventory of supplies available at December 31, 2017, totaled $2,618.
2. An analysis of the company's insurance policies provided the following facts.
   

Policy	Date of Purchase	Months of Coverage	Cost
A	April 1, 2015	24	$	11,640
B	April 1, 2016	36		10,440
C	August 1, 2017	12		9,240

  

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 $2,000 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, 2017, 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, 2018.
4. The company purchased a building on January 1, 2017. It cost $680,000 and is expected to have a $45,000 salvage value at the end of its predicted 30-year life. Annual depreciation is $21,167.
5. Since the company is not large enough to occupy the entire building it owns, it rented space to a tenant at $2,600 per month, starting on November 1, 2017. 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 $2,356 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, 2017.
2. Prepare journal entries to record the first subsequent cash transaction in 2018 for parts c and e.
  

• The Office Supplies account started the year with a $2,975 balance. During 2017, the company purchased supplies for $12,287, which was added to the Office Supplies account. The inventory of supplies available at December 31, 2017, totaled $2,618.

• Record the adjusting entry related to the company's insurance.

• The company has 15 employees, who earn a total of $2,000 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, 2017, 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, 2018.

• The company purchased a building on January 1, 2017. It cost $680,000 and is expected to have a $45,000 salvage value at the end of its predicted 30-year life. Annual depreciation is $21,167.

• Since the company is not large enough to occupy the entire building it owns, it rented space to a tenant at $2,600 per month, starting on November 1, 2017. 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.

• On November 1, the company rented space to another tenant for $2,356 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.

• Record the payment of accrued and current salaries.

• Record the receipt of two months rent.

Answer 1

1		Journal
	Date	Account Title	Debit-$	Credit-$
	31-Dec	Office Supplies Exp	12584
		Office Supplies		12584
		(2975+12287-2618)
	31-Dec	Insurance Expense	8785			WN
		Prepaid Insurance		8785		Policy	Cost per month	Months Active in 2015	2015 cost
		to record annual insurance coverage cost				A	11640/24=	3	1455
	31-Dec	Salaries Exp	4000			B	10440/36=	12	3480
		Salaries Payable		4000		C	9240/12=	5	3850
		to record accrued but unpaid wages							8785
		(2 days *2000)
	31-Dec	Depreciation Exp-Building	21167
		Accumulated Depr-Building		21167
		[680000-45000]/30
	31-Dec	Rent Receivable	2600
		Rent Earned		2600
		to record earned but unpaid Dec rent
	31-Dec	Unearned Rent	4712
		Rent Earned		4712
		to record the amount of rent earned for Nov and Dec (2*2356)
2	Cash payment for Part ©
	6-Jan	Salaries Payable-2000*2 days	4000
		Salaries Exp-2000*3 days	6000
		Cash		10000
		to record payment of accrued and current liabilities
	Cash payment for Part e
	15-Jan	Cash	5200
		Rent Receivable		2600
		Rent Earned		2600
		to record past due rent for two months