Lexi Corporation adjusts its accounts only at year-end. Prior to making their ye

Question

Lexi Corporation adjusts its accounts only at year-end. Prior to making their year-end adjustments, Lexi had a Net Income of $65,000. The following information is available as a source for preparing the adjusting entries at December 31, 2010:

1. Lexi rented some office space beginning November 1 at a rate of $2,700 per month.
On that date Lexi was required to pay three months rent in advance. Prepaid rent
was debited for the amount.

2. On November 1, Lexi borrowed $200,000 from the bank by signing a 9% note. The
principal and interest are due and payable at maturity, which is in four months.

3. Lexi operates five days per week with an average daily payroll of $1,200. Payroll is
paid bi-weekly (every other week). The last payroll payment was made on Friday,
December 24.

. For each of the above numbered items, prepare the necessary adjusting journal entry
in good form. For any item requiring a computation, show your computation under
the entry. If no adjusting entry is required, explain why.

Explanation / Answer

First journal entry is to capture the cost, second is to adjust at end of year. 1.) Debit Prepaid Rent 8100 Credit Cash 8100 Debit Rent Expense 2700 Credit Prepaid rent 2700 2.) Debit Cash 200,000 Credit Note Payable 200,000 Debit Interest Expense 4,500 Credit Interest Payable 4,500 3.) Debit Salary Expense 6000 Credit Salary Payable 6000

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