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E3-5 Model

# E3-5 Model - 1 Depreciation \$250 per month = Depreciation...

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(Adjusting Entries) The ledger of Duggan Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared. Debit Credit Prepaid Insurance \$ 3,600 Supplies 2,800 Equipment 25,000 Accumulated Depreciation—Equipment \$ 8,400 Notes Payable 20,000 Unearned Rent Revenue 9,300 Rent Revenue 60,000 Interest Expense –0– Wage Expense 14,000 An analysis of the accounts shows the following. 1. The equipment depreciates \$250 per month. 2. One-third of the unearned rent was earned during the quarter. 3. Interest of \$500 is accrued on the notes payable. 4. Supplies on hand total \$850. 5. Insurance expires at the rate of \$300 per month. Instructions Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are: Depreciation Expense; Insurance Expense; Interest Payable; and Supplies Expense. SOLUTION: Before preparing the adjusting entries, it will be good to work thru points 1 – 5.

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Unformatted text preview: 1. Depreciation \$250 per month = Depreciation Expense \$250 x 3 = \$750 per quarter 2. 1/3 unearned rent is earned = Rent Revenue = 1/3 x \$9300 = \$3100 3. Interest Expense = \$500 4. Supplies Expense = \$2800 - \$850 = \$1950 5. Insurance Expense = \$300 x 3 = \$900 Adjusting Entries (Closing entries are in red for each item to be transferred to the Income Statement): 1. DR Depreciation Expense \$750 CR Accumulated Depreciation \$750 DR P & L \$750 CR Depreciation Expense \$750 2. DR Unearned Rent Revenue \$3100 CR Rent Revenue \$3100 DR Rent Revenue \$3100 CR P & L \$3100 3. DR Interest Expense \$500 CR Interest Payable \$500 DR P & L \$500 CR Interest Expense \$500 4. DR Supplies Expense \$1950 CR Supplies \$1950 DR P & L \$1950 CR Supplies Expense \$1950 5. DR Insurance Expense \$900 CR Prepaid Insurance \$900 DR P & L \$900 CR Insurance Expense \$900...
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