Question

Exacto Hospital’s preadjusted trial balance at December 31, 20X1, included the following accounts, among others:

Acct. No.

107 Prepaid insurance $ 5,760

108 Prepaid rent 2,700

109 Prepaid interest 3,600

202 Notes payable 80,000

203 Accrued interest payable -0-

204 Accrued salaries and wages payable -0-

250 Bonds payable 400,000

601 Salaries and wages expense 755,200

604 Insurance expense -0-

606 Rent expense -0-

608 Interest expense -0-

The following additional information is available:

1. A three-year insurance premium was prepaid on January 1, 20X1.

2. One year’s rent was paid in advance on June 1, 20X1.

3. On December 1, 20X1, an $80,000, 9 percent, six-month loan

was obtained from a local bank. Interest was prepaid.

4. Unpaid salaries and wages at December 31, 20X1, totaled $68,700.

5. On October 1, 20X1, $400,000 of 6 percent, ten-year bonds

were issued at face value. Interest on these bonds is payable

annually on October 1, beginning October 1, 20X2.

Prepare, in general journal form, the necessary adjusting entries for December 31, 20X1.

Answer 1

Adjusting Entries:

Transaction	Date	Account Title	Debit	Credit
1	Dec 31, 20X1	Insurance expense	1920
		Prepaid insurance		1920
2	Dec 31, 20X1	Rent expense	1575
		Prepaid rent		1575
3	Dec 31, 20X1	Interest expense	600
		Prepaid interest		600
4	Dec 31, 20X1	Salaries and wages expense	68700
		Salaries and wages payable		68700
5	Dec 31, 20X1	Interest expense	6000
		Interest payable		6000

Explanations:

1. Prepaid insurance for 3 Years is $ 5,760, For 20X1 = 5760/3 = $1,920

2. Prepaid rent for 1 Year is $2,700, For 20X1 (June 1 to Dec 31) = 2700 x (7 months /12 months) = $1,575

3. Interest on bank loan for 20X1 (Dec 1 to Dec 31) = 80,000 x 9% x (1/12) = $600,

4. Salaries and wages payable is 68,700 because Unpaid.

5. Interest expense on bonds for Year 20X1 (Oct 1 to Dec 31) = 400,000 x 6% x 3/12 = $ 6,000