The ledger of Sagovic Rental Agency on March 31 of the current year includes the

Question

The ledger of Sagovic Rental Agency on March 31 of the current year includes the selected accounts on page 206 before adjusting entries have been prepared. Debits Credits. Prepaid Insurance ($3600), Supplies ($3000), Equipment ($25,000), Accumulated Depreciation-Equipment (Credit: $8,400), Notes Payable (Credit: $20,000), Unearned Rent Revenue (Credit: $12,400), Rent Revenue (Credit: $60,000), Interest Expense $0, Salaries and Wages Expense ($14,000).
An analysis of the accounts shows the following.
1. The equipment depreciates $280 per month.
2. Half of the unearned rent revenue was earned during the quarter.
3. Interest of $400 is accrued on the notes payable.
4. Supplies on hand total $850.
5. Insurance expires at the rate of $400 per month.

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

Explanation / Answer

1. The equipment depreciates $280 per month.

Debit: Depreciation expense 840
Credit: accumulated depreciation – equipment 840

2. Half of the unearned rent revenue was earned during the quarter.

Debit: Unearned rent revenue 6,200
Credit: Rent revenue 6,200

3. Interest of $400 is accrued on the notes payable.

Debit: Interest expense 400
Credit: interest payable 400

4. Supplies on hand total $850.

Debit: supplies expense 2150
Credit: supplies 2150

5. Insurance expires at the rate of $400 per month.

Debit: Insurance expense 1200
Credit: prepaid insurance 1200

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