Question

Instruction
Prepare a correct trial balance. (Note: It may be necessary to add one or more accounts to the trial balance.)
E3-5 (L03) EXCEL (Adjusting Entries) The ledger of Duggan Rental Agency on March 31 of the current year includes the
following selected accounts before adjusting entries have been prepared.
Debit Credit
Prepaid Insurance $ 3,600
Supplies 2,800
Equipment 25,000
Accumulated Depreciation—Equipment $ 8,400
Notes Payable 20,000
Unearned Rent Revenue 9,300
Rent Revenue 60,000
Interest Expense –0–
Salaries and Wages Expense 14,000
An analysis of the accounts shows the following.
1. The equipment depreciates $250 per month.
2. One-third of the unearned rent was recognized as revenue during the quarter.
3. Interest of $500 is accrued on the notes payable.
4. Supplies on hand total $850.
5. Insurance expires at the rate of $300 per month.

Answer 1

With the given balances, the trial balance is not getting tallied.

The following is the trial balance before making any adjustments:

There was a difference of $52,300, which might be because of any suspense account or miscelleneous.

After passing the adjusted entries, the trial balance is as follows:

In the adjusted trial balance, suspense account is included to show the difference in the total of debits and credits, there is a difference of $52,300 which is on account of some ommissions or corrections.

1. The balances given in the question are taken in natural balances that is, notes payable is taken on credit side and unearned rent revenue is taken on credit side.

2. Depreciation expense is taken on debit side with $250 and $250 is increased to the balance on Accumulated Depreciation.

3. 1/3rd of Unearned rent revenue is decreased from that account ($3,100) and the same is increased to the balance of Rent Revenue account as it was recognized as revenue during the quarter.

4. Interest of $500 is accrued, so a liability of Accrued Interest is created with $500 on credit side and Interest expense is recognized for $500.

5. Given that supplies on hand is $850, so the remaining amount of supplies is consumed. So $1,950 is taken to Supplies Consumed on debit side which is an expense and Supplies were shown at $850.

6. Insurance expense at $300 per month for 3 months are taken and the same amount $900 is deducted from Prepaid Insurance.