Prepare the adjusting entries that are necessary

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Reference no: EM132879698

Problem - Adjusting Entries - Sarah Company's trial balance on December 31 (the end of its annual accounting period), included the following account balances before adjustments:

 

Debit

Credit

Notes Receivable 

$10,000


Insurance Expense 

3,000


Delivery Equipment 

14,000


Building 

60,000


Unearned Rent 


$4,320

Notes Payable 


7,200

Office Supplies Expense 

1,000


Reviewing the company's recorded transactions and accounting records, you find the following data pertaining to the December 31 adjustments:

1. On July 2, the company had accepted a $10,000, 9-month, 10% (annual rate) note receivable from a customer. The interest is to be collected when the note is collected.

2. On August 2, the company had paid $3,000 for a 2-year insurance policy.

3. The building was acquired 10 years ago and is being depreciated using the straight-line method over a 25-year life. It has an estimated residual value of $8,000.

4. The delivery equipment was purchased on April 2. It is to be depreciated using the straight-line method over a 10-year life, with an estimated residual value of $2,000.

5. On September 1, the company had received 2 years' rent in advance ($4,320) for a portion of a building it is renting to Victoria Company.

6. On December 1, the company had issued a $7,200, 3-month, 12% (annual rate) note payable to a supplier. The interest is to be paid when the note is paid.

7. On January 2, the company purchased $1,000 of office supplies. A physical count on December 31 revealed that there are $400 of office supplies still on hand. No supplies were on hand at the beginning of the year.

Required - Prepare the adjusting entries that are necessary to bring Sarah's accounts up to date on December 31. Each journal entry explanation should summarize your calculations.

Reference no: EM132879698

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