Frost Rentals Company faced the following situations. (Click the icon to view th
ID: 2332637 • Letter: F
Question
Frost Rentals Company faced the following situations. (Click the icon to view the situations.) Requirement Journalize the adjusting entry needed at December 31, 2020, for each situation. Consider each fact separately. (Record debits first, then credits. Exclude explanations from any journal entries.) a. The business has interest expense of $3,800 that it must pay early in January 2021 Journal Entry Accounts Debit Credit a. b. Interest revenue of $4,900 has been earned but not yet received. Journal Entry Accounts Debit Credit b. c. On July 1, 2020, when the business collected $12,300 rent in advance, it debited Cash and credited Unearned Rent Revenue. The tenant was paying for two years' rent.Explanation / Answer
Answers
---Interest expense due to be paid leads to creation of a liability recorded as ‘Interest payable” account.
--Entry:
Entry no.
Accounts
Debit
Credit
a.
Interest expense
$ 3,800.00
Interest payable
$ 3,800.00
---Interest revenue earned but not received should be recognised as a revenue. Since it is not realized in Cash, Interest receivable account is debited in its place.
---Entry:
Entry no.
Accounts
Debit
Credit
b.
Interest Receivables
$ 4,900.00
Interest Revenue
$ 4,900.00
---two years rent = $ 12,300 which means per month rent = 12300/24months = $ 512.5
---rent period expired since Jul 1 2020 to 31 Dec 2020 = 6 months.
---Rent Revenue earned = $ 512.5 x 6 months = $ 3,075.
---Entry:
Entry no.
Accounts
Debit
Credit
c.
Unearned Rent Revenue
$ 3,075.00
Rent Revenue
$ 3,075.00
---Last payment of salaries was made on latest Friday.
---Period for which salaries are due to be paid till 31 Dec= Monday to Thursday = 4 days
---Salaries expense accrued to be paid = $ 6400 per day x 4 days = $ 25,600
---Entry:
Entry no.
Accounts
Debit
Credit
d.
Salaries expense
$ 25,600.00
Salaries payable
$ 25,600.00
--Unadjusted balance is $ 3000, but actual on hand balance = $ 1600. This means some of the supplies have been used and consumed.
---The amount of supplies consumed = 3000 – 1600 = $ $ 1,400 = Supplies expense
---Entry:
Entry no.
Accounts
Debit
Credit
e.
Supplies expense
$ 1,400.00
Supplies
$ 1,400.00
---Cost of Equipment = $ 120,000
--Residual value is zero and Life = 5 years.
---Annual Depreciation would be Cost/Life = 120000 / 5 years = $ 24,000
---Entry:
Entry no.
Accounts
Debit
Credit
f.
Depreciation expense - Equipment
$ 24,000.00
Accumulated Depreciation - Equipment
$ 24,000.00
---Equipment Book Value = Cost – Accumulated Depreciation = 120000 – 24000 = $ 96,000
Entry no.
Accounts
Debit
Credit
a.
Interest expense
$ 3,800.00
Interest payable
$ 3,800.00
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