Question

The following unadjusted trial balance was taken from the books of Sela Corporation at the end of its fiscal year on June 30, 2020. Sela Corporation offers accounting professional services to clients.

Account Debit Credit

Cash $30,000

Accounts Receivable 50,000

Notes Payable $24,000

Allowance for Doubtful Accounts 1,000

Supplies 34,000

Prepaid Insurance 20,000

Equipment, cost 200,000

Accumulated Depreciation--Equip. 25,000

Income Tax Payable 10,800

Common Stock 44,200

Retained Earnings 7/1/2019 50,000

Service Revenue 276,000

Unearned Service Revenue 5,000

Utilities expense 30,000

Salaries and Wages Expense 54,000

Rent Expense 18,000

Totals $436,000 $436,000

At year end, the following items have either not yet been recorded or not recorded properly.

a. Insurance expired during the year, $2,000

b. Estimated bad debts for the year $900

c. Depreciation on equipment, 5% per year on original cost.

d. The note payable is a 90-day, 3% APR. The note was given to the bank on May 31, 2020 (assume 360 days in a year).

e. Rent paid in advance at June 30, 2020, $5,000 (originally charged to rent expense).

f. Accrued salaries and wages at June 30, 2020, $8,200

g. Of the unearned service revenue, $2,400 was earned on June 30, 2020.

h. Tax returns service for $3,500 was provided to a client but the client was not billed by June 30, 2020.

i. An inventory count on June 30, 2020 showed $4,000 of supplies on hand.

What is the correct journal entry for adjustment e above?

Select one:

a. Debit prepaid rent $5,000; and credit rent expense $5,000

b. Debit cash $5,000; and credit prepaid rent $5,000

c. Debit rent expense $5,000; and credit prepaid rent $5,000

d.

Debit rent expense $5,000; and credit cash $5,000

Answer 1

Answer: a. Debit prepaid rent $5,000; and credit rent expense $5,000

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