Question

On May 1 a business paid $4,800 for twelve-month liability insurance policy. Also on June 1, the same business entered into a twelve-month rental contract for equipment for $12,000. Determine the following amounts: (a) prepaid insurance as of May 31, (b) prepaid rent as of June 30 (c) insurance expense for May and rent expense for June.

(a)

(b)

(c)

There was a $1,500 balance in the supplies account at the beginning of the period. During the period, the supplies account was increased by $3,000 for supplies purchased. At the end of the period before adjustment, $550 of supplies were on hand. Journalize the necessary adjusting entry.

Answer:

Salaries of $3,500 are paid for a five-day week on Friday. The month ended on Tuesday. Prepare the adjusting journal entry.

Answer:

Answer 1

(a) prepaid insurance as on may 31:

insurance per month is $4800/12 i.e. $ 400 p.m.

Inurance is paid on 1st may for 12 months thefore prepaid insurance on 31st may will be insurance of 11 months i.e. 4800-400= $ 4400

(b) Prepaid rent as on june 30:

Rent per month is - $12000/12 i.e. $ 1000 p.m.

Rent is paid for 12 months therefore prepaid rent as on 30 june will be rent of 11 months i.e. 1000*11= $11000

(c) Insurance expenses for may is $ 400

Rent expenses for JUne is $ 1000

Journal entry for supplies:

Supplies account dr. $ 3000

to Accounts Payable account $ 3000

and

Accounts payable account dr. $ 3950

to cash/ bank account $ 3950

as balance of $550 were on hand at the end of period therefore 3950 was paid during the year.

Journal entry for salary:

salary of $ 3500 are paid for 5 days however the month ends on tuesday i.e. the expenses for the month will be $3500*2/5 = 1400 and 3 days salary will be treated as prepaid expenses i.e. $3500*3/5= 2100

Salary account dr. $ 3500

To Cash/Bank account $3500

Prepaid salary account Dr. $2100

to Salary account $2100