Question

In each of the following transactions (a) through (c) for Romney's Marketing Company, use the three-step process illustrated in the chapter to record only the adjusting entry at the end of the current year. The process includes (1) determining if revenue was earned or an expense was incurred, (2) determining whether cash was received or paid in the past or will be received or paid in the future, and (3) computing the amount of the adjustment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Collected $1,200 rent for the period December 1 of the current year to April 1 of next year, which was credited to Unearned Rent Revenue on December 1.

Purchased a machine for $32,000 cash on January 1. The company estimates annual depreciation at $3,200.

Paid $5,000 for a two-year insurance premium on July 1 of the current year; debited Prepaid Insurance for that amount.

Answer 1

Answer:

Actual Entry

December 1            Cash          $ 1200 Dr

                              Unearned Rent Revenue $1,200 Cr

Collected $1,200 rent for the period December 1 of the current year to April 1 of next year, which was credited to Unearned Rent Revenue on December 1.

Required Entry

December 1         Cash          $ 1200 Dr

                              Rent Revenue                 $900 Cr

                              Unearned Rent Revenue $ 300 Cr

Correcting Entry

Dec 31                 Unearned Rent Revenue $ 900 Dr

                                        Rent Revenue                 $900 Cr

The Revenue was Earned . Cash was received

b)

Required Entry at 31st Dec

                               Depreciation Expense      $3200 Dr

                                Accumulated Depreciation $ 3200 Cr

Purchased a machine for $32,000 cash on January 1. The company estimates annual depreciation at $3,200.

It is an expense . No cash was received or paid . The Value of the machine was depreciated by the amount given.

 c) Actual Entry

Prepaid Insurance  $5,000 Dr

Cash $5,000 Cr.

Paid $5,000 for a two-year insurance premium on July 1 of the current year; debited Prepaid Insurance for that amount.

  Required Entry

Dec 31          Prepaid Insurance 3750 Dr

                         Insurance Expense  1250 Dr

                            Cash  5000 Cr

Insurance for six month has been expired from July 1st . $5000/24* 6= $ 1250. The remaining amount is still as asset for the company.

Cash has already been paid and it is an expense