Question

Problem 12-1: Journalize adjusting entries for prepaid (deferred) expenses.

Journalize the adjusting entries for Rolando As­sociates for the following:

1. On May 31, Rolando Associates' Trial Balance shows a debit balance in the Office Supplies account of $375. An inventory on May 31 shows that $75 worth of supplies are on hand.
2. The Prepaid Insurance account has a debit balance of $1,000. The insurance was pur­chased on March 1 for $1,200 and represents one year's coverage. Insurance expense has not been recorded for May.
3. The Prepaid Subscription—Business Reports account has a debit balance of $110. The sub­scription was purchased on April 1 for $120 and represents one year's coverage. Subscrip­tion expense has not been recorded for May.
4. The Prepaid Interest—Hankin Bank account has a debit balance of $150. Interest expense of $75 for May has not been recorded.

GENERAL JOURNAL
DATE		ACCOUNTS AND EXPLANATION	REF.	DEBIT	CREDIT
May	31
		To adjust balance of office supplies account
	31
		To adjust balance of prepaid insurance account
	31
		To adjust balance of prepaid subscription account
	31
		To adjust balance of prepaid interest account

Answer 1

a)	Supplies Expense A/c			$ 300.00
	To Supplies A/c				$ 300.00
	(Being supplies worth $ 300 ($ 375 - $ 75) has been
	consumed during the year)
b)	Insurance Expense A/c			$ 100.00
	To Prepaid Insurance A/c				$ 100.00
	(Being Insurance expense for the month of May
	has been adjusted with prepaid amount)
c)	Subscription Expense A/c			$    10.00
	To Prepaid Subscription A/c				$    10.00
	(Being subscription expense for the month of May has
	been adjusted with prepaid amount)
d)	Interest Expense A/c			$    75.00
	To Prepaid Interest A/c				$    75.00
	(Being interest expense for the month of May has
	been adjusted)