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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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