Question

Journalize the attached adjusting entries

Prepare the necessary adjusting entries at December 31 for Staples, Inc. based on the information from problem 1 and the following information:

1. On November 1, 2013 the company borrowed 65,000 from a bank. The note requires principal and interest at 10% to be paid on April 30, 2014.

2. On December 1, 2013 the company received $3,000 in cash from another company that is renting office space in Staples’ building. The payment, representing rent for December and January was credited to Sales Revenue.

3. On September 1, 2013 the company paid an insurance company $4,500 for a nine month insurance policy. The entire $4,500 was debited to Prepaid Insurance.

Answer 1

• All working forms part of the answer
• Adjustment entry 1

-Amount borrowed on 1 Nov

-Period ending on 31 Dec

-Interest expense accrued for 2 months [Nov and Dec]

-Amount of Interest expense = $65,000 x 10% x 2/12 = $ 1,083.33

-Entry

Adjustment no.	Accounts title	Debit	Credit
1	Interest expense	$                                     1,083.33
	Interest payable		$                     1,083.33

• Adjustment entry 2

-Amount received = $ 3000 for December and January. Revenue for December to be recognised = $ 1500 (3000 x ½)

-Sales revenue wrongly credited, hence it needs to be debited.

-january rent received in advance will ne Unearned rent Revenue.

-Entry

Adjustment no.	Accounts title	Debit	Credit
2	Sales revenue	$                                     3,000.00
	Rent Revenue		$                     1,500.00
	Unearned rent revenue		$                     1,500.00

• Adjustement entry 3

-Insurance period = 9 months.

-Amount paid on Sept 1

-Insurance expired for = 4 months [Sept, Oct , Nov, Dec]

-Amount of insurance expired = $ 4500 x 4/9 =$ 2,000

-Entry

Adjustment no.	Accounts title	Debit	Credit
3	Insurance Expense	$                                     2,000.00
	Prepaid Insurance		$                     2,000.00