4. (TCO B) Adjusting Entries: When the accounts of Constantine Inc. are examined

Question

4. (TCO B) Adjusting Entries: When the accounts of Constantine Inc. are examined, the adjusting data listed below are uncovered on December 31, the end of annual fiscal period. The prepaid insurance account shows a debit of $6,000, representing the cost of a 2-year fir insurance policy dated August 1 of the current year. On November 1, Rental Revenue was credited for $2,400, representing revenue from a sub-rental for a 3-month period beginning on that date. Interest of $770 has accrued on notes payable. You are to prepare the missing adjusting entry. For each journal entry write Dr. for debit and Cr. for credit. (Points : 10)

Explanation / Answer

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1. It is a 24 month policy so you have to divide the total by 24. This will give you the monthly value, multiply that by how many months you used the in the current year (Aug, Sep, Oct, Nov, Dec). Then Credit the Pre-Paid Ins and Debit Ins Exp.

2. Here again you want to find out the monthly value of your Rental Revenue (2400 divided by three months). Since you only earned two months of revenue you have to allocate the remainder to Unearned Revenue. Debit Revenue and Credit Unearned Revenue.

3. You originally had 800 in materials and at the end of the year there was 290 left. Find out the difference and Credit Materials and Debit Materials Exp.

4. You have accrued an expense (liability). Debit $770 in Interest Expense and Credit Interest Payable.

As far as the reversals go, only reverse your accruals. Therefore if it does not involve money that has moved, deferral, don't reverse. Review your text.

3 years ago

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