Question

Adjusting entries. You have been retained to examine the records of Kathy’s Day Care Center as of December 31, 20X3, the close of the current reporting period. In the course of your examination, you discover the following: On January 1, 20X3, the Supplies account had a balance of $2,350. During the year, $5,520 worth of supplies was purchased, and a balance of $1,620 remained unused on December 31. Unrecorded interest owed to the center totaled $275 as of December 31. All clients pay tuition in advance, and their payments are credited to the Unearned Tuition Revenue account. The account was credited for $75,500 on August 31. With the exception of $15,500, which represented prepayments for 10 months’ tuition from several well-to-do families, all amounts were for the current semester ending on December 31. Depreciation on the school’s van was $3,000 for the year. On August 1, the center began to pay rent in 6-month installments of $21,000. Kathy wrote a check to the owner of the building and recorded the check in Pre- paid Rent, a new account. Two salaried employees earn $400 each for a 5-day week. The employees are paid every Friday, and December 31 falls on a Thursda Kathy’s Day Care paid insurance premiums as follows, each time debiting Pre- paid Insurance:

Date Paid	Policy No.	Length of Policy	Amount
Feb. 1, 20X2	1033MCM19	1 year	$540
Jan. 1, 20X3	7952789HP	1 year	912
Aug. 1, 20X3	XQ943675ST	2 years	840

Instructions - The center’s accounts were last adjusted on December 31, 20X2. Prepare the adjusting entries necessary under the accrual basis of accounting in the below general journal.

GENERAL JOURNAL – KATHY’S DAY CARE CENTER

Date	Account titles & Explanation	Debit	Credit
Dec. 31	To record supplies used
	Supplies Expense
	Supplies
Dec. 31	To record accrued interest
	Interest Receivable
	Interest Revenue
Dec. 31	To record tuition revenue earned
	Unearned Tuition Revenue
	Tuition Revenue
Dec. 31	To record depreciation expense
	Depreciation expense

	Accumulated Depreciation: Van
Dec. 31	To record expiration of prepaid rent
	Rent expense
	Prepaid Rent
Dec. 31	To record accrued salaries
	Salaries Expense
	Salaries Payable
Dec. 31	To record expired insurance
	Insurance expense
	Prepaid Insurance

Answer 1

Date	Account Titles & Explanation	Debit	Credit
Dec. 31	To record supplies used
	Supplies expense ($2350 + $5520 - $1620)	6250
	Supplies		6250
Dec. 31	To record accrued interest
	Interest receivable	275
	Interest revenue		275
Dec. 31	To record tuition revenue earned
	Unearned tuition revenue	60000
	Tuition revenue ($75500 - $15500)		60000
Dec. 31	To record depreciation expense
	Depreciation expense	3000
	Accumulated depreciation: Van		3000
Dec. 31	To record expiration of prepaid rent
	Rent expense ($21000 x 5/6)	17500
	Prepaid rent		17500
Dec. 31	To record accrued salaries
	Salaries expense (2 x $400 x 4/5)	640
	Salaries payable		640
Dec. 31	To record expired insurance
	Insurance expense	1307
	Prepaid insurance		1307

Working:

Date Paid	Policy No.	Length of Policy	Amount	Insurance per Month	No. of Months of 20X3	Insurance Expense
Feb. 1, 20X2	1033MCM19	1 year	540	45	1	45
Jan. 1, 20X3	7952789HP	1 year	912	76	12	912
Aug. 1, 20X3	XQ943675ST	2 years	840	70	5	350
Total $						1307