Question

E3-7 The ledger of Passehl Rental Agency on March 31 of the current year includes the selected accounts, shown below, 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 ​​10,200

Rent Revenue ​​60,000

Interest Expense ​–0– ​

Salaries and Wages Expense ​14,000 ​

An analysis of the accounts shows the following.

The equipment depreciates $400 per month.

One-third of the unearned rent revenue was earned during the quarter.

Interest of $500 is accrued on the notes payable.

Supplies on hand total $750.

Insurance expires at the rate of $300 per month.

Instructions

Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are Depreciation Expense, Insurance Expense, Interest Payable, and Supplies Expense.

Prepare adjusting entries.

Answer 1

• All working forms part of the adjusting entries.

Adjusting Entry no.	Accounts title	Debit	Credit	Working
1	Depreciation Expense	$                                     1,200.00		[$400 per month x 3 months of quarter]
	Accumulated Depreciation - Equipment		$                     1,200.00
	(depreciation for the quarter recorded)
2	Unearned rent Revenue	$                                     3,400.00		[one third = 10200 x 1/3 = earned]
	Rent Revenue		$                     3,400.00
	(Unearned revenue now earned)
3	Interest expense	$                                         500.00
	Interest Payable		$                        500.00
	(Interest accrued to be paid)
4	Supplies expense	$                                     2,050.00		[Unadjusted balance - On hand balance]
	Supplies		$                     2,050.00	[2800 - 750]
	(Supplies consumed]
5	Insurance Expense	$                                         900.00		[Quarter = 3 months]
	Prepaid Insurance		$                        900.00	[$ 300 x 3 months]
	(3 months of insurance expired)