Question

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For Stillwater Sports, assume a December 31 year end, and make the appropriate journal entries. If a reversing entry is required, please record it with a January 1 date. 1. Stillwater paid $2,400 for a two-year insurance policy on April 1 and recorded it as a debit to an asset account. 2. Stillwater leased a portion of its building to a fitness instructor and collected $12,000 in advance rent on August 1. The lease is for one year. Stillwater's bookkeeper credited the payment to a rental revenue account. 3. Stillwater purchased $1,450 in office supplies and recorded them as an asset. At December 31, there were $305 in supplies on hand. 4. Stillwater purchased office equipment on May 1. The cost was $9,600 with a salvage value of $600. The useful life is estimated at 6 years. 5. Stillwater borrowed $50,000 from Tulsa National Bank on August 1. The note has an interest rate of 9% and is due on July 31 of the following year. 6. Stillwater loaned $20,000 to Eskimo Joe on November 1. The interest rate is 14% and the note is due on May 1 of the following year.

Answer 1

Adjusting Entries

	Account Titles	Debit	Credit
1	Insurance expense	$                  900		=2400/24*9
	Prepaid Insurance		$                  900
2	Rent Revenue	$               7,000		=12000/12*7
	Unearned Rent Revenue		$               7,000
3	Supplies Expense	$               1,145		=1450-305
	Supplies		$               1,145
4	Depreciation Expense	$               1,000		=(9600-600)/6*8/12
	Accumulated Depreciation		$               1,000
5	Interest Expense	$               1,875		=50000*9%*5/12
	Interest Payable		$               1,875
6	Interest Receivable	$                  467		=20000*14%*2/12
	Interest Revenue		$                  467

Reversing Entries

Account Titles	Debit	Credit
Interest Payable	$               1,875
Interest Expense		$               1,875
Interest Revenue	$                  467
Interest Receivable		$                  467

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