Question

Scotsman Company prepares monthly financial statements. Below are listed some selected accounts and their balances in the September 30 trial balance before any adjustments have been made for the month of September.
Debit Credit
Supplies $3,200
Prepaid Insurance 4,200
Equipment 16,200
Accumulated Depreciation—Equipment $1,000
Unearned Rent Revenue 1,200

An analysis of the account balances by the company’s accountant provided the following additional information:

1. A physical count of supplies revealed $1,000 on hand on September 30.
2. A two-year life insurance policy was purchased on June 1 for $4,800.
3. Equipment depreciated $3,000 per year.
4. The amount of rent received in advance that remains unearned at September 30 is $500.

Required:
Using the above additional information, prepare the adjusting entries that should be made by Scotsman Company on September 30.

Answer 1

Answer:

All entries are made in 30 September.

1.    Supplies expense           2200 Dr

          Supplies account             2200 Cr

2.   Insurance Expense        200 Dr

         Prepaid Insurance             200 Cr

3.  Depreciation expense                                  250 Dr

         Accumulated depreciation-Equipment        250 Cr

4.   Unearned Rent Revenue      700 Dr

          Rent revenue                          700 Cr

Explanation:

1.

The supplies difference between supplies at start of the month and at end of the month is the amount of supplies expense.

The supplies expense will be debited and the supplies account will be credited.

Supplies expense = 3200 - 1000 = 2200

2.

The insurance policy is for 2 years which is 24 months. The monthly expense for insurance is 4800 / 24  = 200 per month.

The Insurance expense will be debited by 200 and prepaid insurance will be credited.

3.

The depreciation of 3000 is for the whole year. The monthly expense is 3000/12 = 250 per month.

Depreciation expense will be debited and accumulated depreciation will be credited.

4.

The rent is unearned at the start of the month for the amount of 1200. At the end some of the rent has been earned and unearned rent is 500.

The rent earned for the month is = 1200 - 500 = $700

Unearned rent revenue will be debited by this amount and rent revenue will be credited.