Question

Exercise 3-05

The ledger of Marigold Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared.

		Debit			Credit
Prepaid Insurance		$3,264
Supplies		2,767
Equipment		23,470
Accumulated Depreciation-Equipment					$9,126
Notes Payable					19,820
Unearned Rent Revenue					8,580
Rent Revenue					58,820
Interest Expense		–0–
Salaries and Wages Expense		12,720

An analysis of the accounts shows the following.

1.		The equipment depreciates $249 per month.
2.		One-third of the unearned rent was recognized as revenue during the quarter.
3.		Interest of $510 is accrued on the notes payable.
4.		Supplies on hand total $695.
5.		Insurance expires at the rate of $272 per month.

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 Expenses. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Answer 1

Preparing Adjusting Entries for Marigold Rental Agency at March 31, assuming that the Adjusting Entries made quarterly (in every three months):-

Marigold Rental Agency

General Journal (Adjusting Entries)

March 31(quarterly)

Date	Accounts Title	Debit	Credit
March 31 (1)	Depreciation Expense	$747
	Accumulated Depreciation - Equipment		$747
March 31 (2)	Unearned Rent Revenue	$2,860
	Rent Revenue		$2,860
March 31 (3)	Interest Expense	$510
	Interest Payable		$510
March 31 (4)	Supplies Expense	$2,072
	Supplies		$2,072
March 31 (5)	Insurance Expense	$816
	Prepaid Insurance		$816

Working Notes:-

(1) Depreciation Expense $249 per month.

So Quarterly Depreciation Expense for Equipment=($249×3 months)

=$747

(2) One third of the Unearned Rent Revenue recognized as Rent Revenue.

So the Rent Revenue is =($8,580×1/3)

=$2,860

(3) Interest of $510 is accrued on Notes Payable.

So the Interest Expense for the Quarter is $510.

(4) Supplies Expense for this Quarter=(Supplies - Supplies on hand)

=($2,767-$695)

=$2,072

(5) Insurance Expired at the rate of $272 per month.

So Insurance Expense for quarter=($272×3months)

=$816