Question

2. Prepare the necessary adjusting journal entry at December 31, 2018 for each of the following transactions for Broncos. Broncos' fiscal year ends on December 31.

1) On November 1, 2018, the bar area was leased to Denver Inc. for 6 months. Broncos received $6,000 representing the first six months’ rent and credited unearned (deferred) rent revenue.

2)On April 1, 2018, Broncos paid $2,400 for a two-year fire and liability insurance policy and debited insurance expense.

3) On October 1, 2018, Broncos borrowed $20,000 from a local bank and signed a note. Principal and interest at 12% will be paid on September 30, 2019.

4) At year-end, there is a $1,800 debit balance in the supplies (asset) account. Only $700 of supplies remain on hand.

5)The office equipment was purchased in 2016 and is being depreciated using the straight-line method over an eight-year useful life with no salvage value.

6) With a new loan agreement, Broncos borrowed $30,000 on September 1, 2018. The principal is due to be repaid in 10 years. Interest is payable twice a year on each August 31 and February 28 at an annual rate of 10%.

7) Broncos employees work Monday through Friday, and salaries of $2,400 per week are paid each Friday. Flower Hills' year-end falls on Tuesday.

8) On December 31, 2018, Broncos received a utility bill for December electricity usage of $190 that will be paid in early January of 2019.

Answer 1

(1) Bar is leased for six months from November 1 to April 30.

Till our reporting period December 31, 2018 2months rent will be credited to Rent revenue and 4 months rent from January to April will be deferred. INSTEAD Broncos wholly credited unearned (deferred) rent revenue. so we will reverse unearned deferred rent revenue and credit rent revenue for two months [$6000/6months]*2months = $2000

Date	Account title	Debit	Credit
Dec 31	Unearned deferred Rent Revenue	$2000
	Rent revenue		$2000

(2) Two year policy insurance policy have been paid for 2year from april 1 2018 to March 31 2020.

Our reporting period includes [april - December] 9Months of terms of policy.

so $900[ (2400/24months) * 9months ] will be debited to insurance expense and other $1500 [2400-900] will be debited to prepaid insurance.

Instead Broncos debited insurance expense wholly so we will credit insurance expense by 1500$ and debit prepaid insurance

Date	Account	Debit	Credit
Dec 31	Prepaid Insurance	$1500
	Insurance expense		$1500

(3) Interest 12% on 20000$ for 3months for our reporting period [October -December] will be debited to interest expense and credited to interest payable. [20000*12%]/12 months * 3months =$600

Date	Account	Debit	Credit
Dec 31	Interest on note payable	$600
	interest payable		$600

(4) $1800 inventory on hand however 1100$ [1800-700] was issued to supply and hence will be debited to supply expense and inventory will be reduced.

Dec 31	Supplies expense	$1100
	Supplies on hand		$1100

(5) depreciation will be debited and accumulated depreciation will be credited by amount of depreciation.Equipment value is not given.

(6) equal monthly installments

[30000*10%] 3000$ interest will be chargeable from september 2018 to August 2019. Our reporting period Sept - december 4months interest will be debited to expense.3000$/12*4

Dec 31	Interest Expense	1000$
	Interest payable		1000$

(6)

per day salary expense = 2400/5 = 480$

as employees are paid on friday salary for monday and tuesday will be debited to salry expense and credited to salary payable as they fall within our reporting period endind 31 December 2018

Dec 31	Salary expense	$960
	Salary Payable		$960

(8)

as electricity bill for December is not paid it will be shown as utility payable.Its related to expense of our reporting period even though not p aid in december. Utility expens ewill be debited.

Dec 31	Utility expense	$190
	Utility Payable		$190