Question

Greco Resort opened for business on June 1 with eight air-conditioned units. Its trial balance on August 31 is as follows.

 

Other data:

1. The balance in prepaid insurance is a one-year premium paid on June 1, 2008.

2. An inventory count on August 31 shows $450 of supplies on hand.

3. Annual depreciation rates are cottages (4%) and furniture (10%). Salvage value is estimated to be 10% of cost.

4. Unearned Rent Revenue of $3,800 was earned prior to August 31.

5. Salaries of $375 were unpaid at August 31.

6. Rentals of $800 were due from tenants at August 31.

7. The mortgage (dated June 1, 2008) has an interest rate of 8% per year.

 

Instructions

(a) Journalize the adjusting entries on August 31 for the 3-month period June 1–August 31. (Omit explanations.)

(b) Prepare an adjusted trial balance on August 31.

Answer 1

a) Adjusting Entries

Date	Accounts title	Debit	Credit
August 31,2014	Insurance expense	$ 1,125.00
	Prepaid insurance		$ 1,125.00
	($4500*3/12)
August 31,2014	Supplies expense	$ 2,150.00
	Supplies		$ 2,150.00
	($2600 - $450)
August 31,2014	Depreciation expense	$ 1,080.00
	Accumulated depreciation on buildings		$ 1,080.00
	($120,000 * 90% * 4% * 3/12)
August 31,2014	Depreciation expense	$ 360.00
	Accumulated depreciation on equipments		$ 360.00
	($16,000 * 90% * 10% * 3/12)
August 31,2014	Unearned rent revenue	$ 3,800.00
	Rent revenue		$ 3,800.00
August 31,2014	Salary expense	$ 375.00
	Salary payable		$ 375.00
August 31,2014	Accounts receivable	$ 800.00
	Rent revenue		$ 800.00
August 31,2014	Interest expense	$ 1,200.00
	Interest payable		$ 1,200.00
	($60,000 * 8% *3/12)

 

b) Worksheet

	Unadjusted Trial balance		Adjustments		Adjusted Trial balance
	Debit	Credit	Debit	Credit	Debit	Credit
Cash	$ 19,600.00				$ 19,600.00
Prepaid Insurance	$ 4,500.00			$ 1,125.00	$ 3,375.00
Supplies	$ 2,600.00			$ 2,150.00	$ 450.00
Land	$ 20,000.00				$ 20,000.00
Buildings	$ 120,000.00				$ 120,000.00
Equipment	$ 16,000.00				$ 16,000.00
Accounts Payable		$ 4,500.00				$ 4,500.00
Unearned Rent Revenue		$ 4,600.00	$ 3,800.00			$ 800.00
Mortgage Payable		$ 60,000.00				$ 60,000.00
Common Stock		$ 91,000.00				$ 91,000.00
Retained Earnings		$ 9,000.00				$ 9,000.00
Dividends	$ 5,000.00				$ 5,000.00
Rent Revenue		$ 76,200.00		$ 4,600.00		$ 80,800.00
Salaries and Wages Expense	$ 44,800.00		$ 375.00		$ 45,175.00
Utilities Expenses	$ 9,200.00				$ 9,200.00
Maintenance and Repairs Expense	$ 3,600.00				$ 3,600.00
Insurance expense			$ 1,125.00		$ 1,125.00
Suplies expense			$ 2,150.00		$ 2,150.00
Accumulated depreciation - Buildings				$ 1,080.00		$ 1,080.00
Accumulated depreciation - Equipments				$ 360.00		$ 360.00
Depreciation expense			$ 1,440.00		$ 1,440.00
Salary payable				$ 375.00		$ 375.00
Accounts receivable			$ 800.00		$ 800.00
Interest expense			$ 1,200.00		$ 1,200.00
Interest payable				$ 1,200.00		$ 1,200.00
	$ 245,300.00	$ 245,300.00	$ 10,890.00	$ 10,890.00	$ 249,115.00	$ 249,115.00

Greco Resort
Adjusted trial balance
August 31, 2014
	Debit	Credit
Cash	$ 19,600.00
Accounts receivable	$ 800.00
Prepaid Insurance	$ 3,375.00
Supplies	$ 450.00
Land	$ 20,000.00
Buildings	$ 120,000.00
Accumulated depreciation - Buildings		$ 1,080.00
Equipment	$ 16,000.00
Accumulated depreciation - Equipments		$ 360.00
Accounts Payable		$ 4,500.00
Unearned Rent Revenue		$ 800.00
Salary payable		$ 375.00
Interest payable		$ 1,200.00
Mortgage Payable		$ 60,000.00
Common Stock		$ 91,000.00
Retained Earnings		$ 9,000.00
Dividends	$ 5,000.00
Rent Revenue		$ 80,800.00
Salaries and Wages Expense	$ 45,175.00
Utilities Expenses	$ 9,200.00
Maintenance and Repairs Expense	$ 3,600.00
Insurance expense	$ 1,125.00
Supplies expense	$ 2,150.00
Depreciation expense	$ 1,440.00
Interest expense	$ 1,200.00
	$ 249,115.00	$ 249,115.00