When the accounts of Constantine Inc. are examined, the adjusting data listed be

Question

When the accounts of Constantine Inc. are examined, the adjusting data listed below are uncovered on December 31, the end of an annual fiscal period. 1. The prepaid insurance account shows a debit of $6,000, representing the cost of a 2-year fire insurance policy dated August 1 of the current year. 2. On November 1, Rent Revenue was credited for $2,400, representing revenue from a subrental for a 3-month period beginning on that date. 3. Purchase of advertising supplies for $800 during the year was recorded in the Advertising Expense account. On December 31, advertising supplies of $290 are on hand. 4. Interest of $770 has accrued on notes payable. Instructions Prepare the following in general journal form. (a) The adjusting entry for each item. (b) The reversing entry for each item where appropriate.

Explanation / Answer

1. The prepaid insurance account shows a debit of $6,000, representing the cost of a 2-year fire insurance policy dated August 1 of the current year. Debit Insurance Expense $1,250 ($6,000 / 24 X 5) Credit Prepaid Insurance $1,250 No Reversing Entry needed 2. On November 1, Rental Revenue was credited for $2,400, representing revenue from a subrental for a 3-month period beginning on that date. If the $2,400 was for all three months then the adjusting entry would be: Debit Rental Revenue $800 ($2,400 / 3) Credit Deferred Rental Revenue $800 Reversing entry in the next year would be: Debit Deferred Rental Revenue $800 Credit Rental Revenue $800 3. Purchase of advertising materials for $800 during the year was recorded in the Advertising Expense account. On December 31, advertising materials of $290 are on hand. Debit Advertising Materials Inventory $290 Credit Advertising Expense $290 The reversing Entry would be: Debit Advertising Expense $290 Credit Advertising Materials Inventory $290 4. Interest of $770 has accrued on notes payable. Debit Interest Receivable $770 Credit Interest Income $7

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