Question

Arnez Company’s annual accounting period ends on December 31, 2018. The following information concerns the adjusting entries to be recorded as of that date.

1. The Office Supplies account started the year with a $4,350 balance. During 2018, the company purchased supplies for $17,966, which was added to the Office Supplies account. The inventory of supplies available at December 31, 2018, totaled $3,828.
2. An analysis of the company's insurance policies provided the following facts.

Policy	Date of Purchase	Months of Coverage	Cost
A	April 1, 2016	24	$	10,464
B	April 1, 2017	36		9,216
C	August 1, 2018	12		8,064

The total premium for each policy was paid in full (for all months) at the purchase date, and the Prepaid Insurance account was debited for the full cost. (Year-end adjusting entries for Prepaid Insurance were properly recorded in all prior years.)

3. The company has 15 employees, who earn a total of $1,600 in salaries each working day. They are paid each Monday for their work in the five-day workweek ending on the previous Friday. Assume that December 31, 2018, is a Tuesday, and all 15 employees worked the first two days of that week. Because New Year’s Day is a paid holiday, they will be paid salaries for five full days on Monday, January 6, 2019.
4. The company purchased a building on January 1, 2018. It cost $615,000 and is expected to have a $45,000 salvage value at the end of its predicted 30-year life. Annual depreciation is $19,000.
5. Since the company is not large enough to occupy the entire building it owns, it rented space to a tenant at $3,500 per month, starting on November 1, 2018. The rent was paid on time on November 1, and the amount received was credited to the Rent Earned account. However, the tenant has not paid the December rent. The company has worked out an agreement with the tenant, who has promised to pay both December and January rent in full on January 15. The tenant has agreed not to fall behind again.
6. On November 1, the company rented space to another tenant for $3,171 per month. The tenant paid five months' rent in advance on that date. The payment was recorded with a credit to the Unearned Rent account.

Required:
1. Use the information to prepare adjusting entries as of December 31, 2018.
2. Prepare journal entries to record the first subsequent cash transaction in 2019 for parts c and e.

Answer 1

Transaction	General Journal	Debit	Credit
a.	Office supplies expense	18,488		=4350+17966-3828
	Office supplies		18,488
b.	Insurance expense	7,740
	Prepaid insurance		7,740
c.	Salaries expense	3,200		=1600*2
	Salaries payable		3,200
d.	Depreciation expense—Building	19,000
	Accumulated depreciation—Building		19,000
e.	Rent receivable	3,500
	Rent earned		3,500
f.	Unearned rent	6,342		=3171*2
	Rent earned		6,342
Date	General Journal	Debit	Credit
6-Jan	Salaries payable	3,200
	Salaries expense	4,800		=1600*3
	Cash		8,000
15-Jan	Cash	7,000
	Rent receivable		3,500
	Rent earned		3,500
	Insurance expense workings:
	April 1, 2016	1308	=10464/24*3
	April 1, 2017	3072	=9216/36*12
	August 1, 2018	3360	=8064/12*5
	Total	7740