Exercise 3-7 The ledger of Perez Rental Agency on March 31 of the current year i

Question

Exercise 3-7 The ledger of Perez Rental Agency on March 31 of the current year includes the selected accounts, shown below, before quarterly adjusting entries have been prepared. Debit Credit Prepaid Insurance $ 7,200 Supplies 2,800 Equipment 18,750 Accumulated Depreciation—Equipment $ 8,400 Notes Payable 21,000 Unearned Rent Revenue 9,900 Rent Revenue 61,000 Interest Expense 0 Salaries and Wages Expense 18,000 An analysis of the accounts shows the following. 1. The equipment depreciates $300 per month. 2. One-third of the unearned rent revenue was earned during the quarter. 3. Interest totaling $525 is accrued on the notes payable for the quarter. 4. Supplies on hand total $690. 5. Insurance expires at the rate of $400 per month.

Explanation / Answer

Answer: Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly.
1. The equipment depreciates $300 per month
Dr Depreciation Expense $900
Cr Accumulated Depreciation—Equipment $900

2. One-third of the unearned rent was earned during the quarter
Dr Unearned Rent $3,300
Cr Rent Revenue $3,300

3. Interest of $525 is accrued on the notes payable
Dr Interest Expense $525
Cr Interest Payable $525

4. Supplies on hand total $690
Dr Supplies Expense $2,110
Cr Supplies $2,110

5. Insurance expires at the rate of $400 per month
Dr Insurance Expense $1200
Cr Prepaid Insurance $1200

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