ACCT 201 Principles of Financial Accounting Practice Exam - Chapter 3 Reporting & Preparing Financial Statemens Dr. Fred Barbee Solution to Problem #1

In general journal form, record the December 31 adjusting entries for the following transactions and events. Assume that December 31 is the end of the annual accounting period.

a.	The Prepaid Insurance account shows a debit balance of $2,340, representing the cost of a three-year fire insurance policy that was purchased on October 1 of the current year.
b.	The Office Supplies account has a debit balance of $400; a year-end inventory count reveals $80 of supplies still available.
c.	On November 1 of the current year, Rent Earned was credited for $1,500. This amount represented the rent earned for a three-month period beginning November 1.
d.	Depreciation on office equipment is $600.
e.	Accrued salaries amount to $400.

Solution

Insurance Expense	195
Prepaid Insurance		195

              ($2,340/36 = $65/mo; $65 x 3 mos = $195)

Office Supplies Expense	320
Office Supplies ($400 - $80)		320

Rent Earned	500
Unearned Rent ($1500/3)		500

Depreciation Expense - Office Equipment	600
Accumulated Depreciation - Office Equip		600

Salaries Expense	400
Salaries Payable		400