Question

Problem 3-04A

A review of the ledger of Gina Company at December 31, 2020, produces the following data pertaining to the preparation of annual adjusting entries.

1.	Prepaid Insurance $10,340. The company has separate insurance policies on its buildings and its motor vehicles. Policy B4564 on the building was purchased on April 1, 2019, for $7,920. The policy has a term of 3 years. Policy A2958 on the vehicles was purchased on January 1, 2020, for $4,400. This policy has a term of 2 years.
2.	Unearned Rent Revenue $378,000. The company began subleasing office space in its new building on November 1. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease.

Date		Term (in months)		Monthly Rent		Number of Leases
Nov. 1		9		$5,000		5
Dec. 1		6		$8,500		3

3.	Notes Payable $120,000. This balance consists of a note for 9 months at an annual interest rate of 6%, dated November 1.
4.	Salaries and Wages Payable $0. There are 8 salaried employees. Salaries are paid every Friday for the current week. 5 employees receive a salary of $700 each per week, and 3 employees earn $500 each per week. Assume December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December.

Prepare the adjusting entries at December 31, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

No.	Date	Account Titles and Explanation	Debit	Credit
1.	Dec. 31
2.	Dec. 31
3.	Dec. 31
4.	Dec. 31

Answer 1

Working Notes

1) Calculation of Insurance Expense for the Year

Insurance expense of B4564 = $7,920 / 3 (As this is for 3 years)

= $2,640

Insurance expense of A2958 = $4,400 / 2 (As this is for 2 years)

= $2,200

Total Insurance Expense = $4,840 ($2,640 + $2,200)

2) Calculation of Rent Revenue for the Year

= Monthly Rent * Number of Leases * Remaining months in the year

= ($5,000 * 5 * 2) + ($8,500 * 3 * 1)

= $75,500

3) Calculation of Interest Expense for the Year

= $120,000 * 6% * 2/12

= $1,200

4) Calculation of Salary Expense for the Year

= (5 Employees * $700 * 2/5) + (3 Employees * $500 * 2/5)

= $2000

Journal Entries

No.	Date	Account Title & Explanation	Debit	Credit
1	Dec 31	Insurance Expense	4,840
		Prepaid Expense		4,840
		(To record insurance expense)
2	Dec 31	Unearned Rent Revenue	75,500
		Rent Revenue		75,500
		(To record Rent Revenue)
3	Dec 31	Interest Expense	$1,200
		Interest accrued but not due		$1,200
		(To record interest expense for 2 months)
4	Dec 31	Salaries and Wages Expense	$2,000
		Salaries and Wage Payable		$2,000
		(To record salary expense)