Question

PROBLEM 4.3A

Analysis of Adjusted Data

Gunflint Adventures operates an airplane service that takes fishing parties to a remote lake resort in northern Manitoba, Canada. Individuals must purchase their tickets at least one month in advance during the busy summer season. The company adjusts its accounts only once each month. Selected balances appearing in the company’s June 30 adjusted trial balance appear as follows.

	Debit	Credit
Prepaid airport rent	$ 9,000
Unexpired insurance	4,200
Airplane	288,000
Accumulated depreciation: airplane		$80,000
Unearned passenger revenue		75,000

Other Information

1. The airplane is being depreciated over a 15-year life with no residual value.

2. Unearned passenger revenue represents advance ticket sales for bookings in July and August at $300 per ticket.

3. Six months’ airport rent had been prepaid on May 1.

4. The unexpired insurance is what remains of a 12-month policy purchased on February 1.

5. Passenger revenue earned in June totaled $40,000.

Instructions

1. Determine the following.

   1. The age of the airplane in months.

   2. The monthly airport rent expense.

   3. The amount paid for the 12-month insurance policy on February 1.

2. Prepare the adjusting entries made on June 30 involving the following accounts.

   1. Depreciation Expense: Airplane

   2. Airport Rent Expense

   3. Insurance Expense

   4. Passenger Revenue Earned

Answer 1

Age of Airplane:
Cost			288000
Divide: Life		180
Monthly dep		1600
Accumulated dep balance	80,000
Divide: Monthly dep		1600
Age of airplane		50	months
Monthly airplance rent:
Prepaid airplane rent		9000
Divide: Total life		3
Monthly airplance rent:	3000
Unexpired Insurance		4200
Divide: Unexpired period	7
Monthly Insurance		600
Annual Insurance (600*12)	7200
Journal entries
S.no.	Accounts title and explanations		Debit $	Credit $
a.	Depreciation expense		1600
	Accumulated dep-Airplane			1600
	(for depreciation charged)
b.	Airplane rent expense		3000
	Prepaid airplane rent			3000
	(for rent expired)
c.	Insurance expense			600
	Prepaid insurance				600
	(for insurance expense expired)
d.	Unearned passengr revenue		40,000
	Passenger revenue				40,000
	(for revenue earned)