Question

Kingbird Resort opened for business on June 1 with eight air-conditioned units. Its trial balance on August 31 is as follows.

KingBird Resort Trial Balance August 31, 2020
Debit Credit
Cash $25,900
Prepaid Insurance 10,800
Supplies 8,900
Land 22,000
Buildings 122,000
Equipment 18,000
Accounts Payable $10,800
Unearned Rent Revenue 10,900
Mortgage Payable 62,000
Common Stock 99,300
Retained Earnings 9,000
Dividends 5,000
Rent Revenue 78,200
Salaries and Wages Expense 44,800
Utilities Expenses 9,200
Maintenance and Repairs Expense 3,600
$270,200 $270,200
Other data:
1. The balance in prepaid insurance is a one-year premium paid on June 1, 2020.
2. An inventory count on August 31 shows $443 of supplies on hand.
3. Annual depreciation rates are (a) buildings (4%) (b) equipment (10%). Salvage value is estimated to be 10% of cost.
4. Unearned Rent Revenue of $3,472 was earned prior to August 31.
5. Salaries of $392 were unpaid at August 31.
6. Rentals of $873 were due from tenants at August 31.
7. The mortgage interest rate is 8% per year.
A. Journalize the adjusting entries on August 31 for the 3-month period June 1–August 31.
No. Date Account Titles and Explanation Debit Credit
1. Aug. 31
2. Aug. 31
3a. Aug. 31
3b. Aug. 31
4. Aug. 31
5. Aug. 31
6. Aug. 31
7. Aug. 31
B. Prepare an adjusted trial balance on August 31.

Answer 1

A. Journalize the adjusting entries on August 31 for the 3-month period June 1–August 31.

1. The balance in prepaid insurance is a one-year premium paid on June 1, 2020.

prepaid insurance expense per month = $10,800 / 12 = $900 x 3 months = $2,700

Dr Insurance expense 2,700

Cr Prepaid insurance 2,700

2. An inventory count on August 31 shows $443 of supplies on hand.

supplies expense = $8,900 - $443 = $8,457

Dr Supplies expense 8,457

Cr Supplies 8,457

3. Annual depreciation rates are (a) buildings (4%) (b) equipment (10%). Salvage value is estimated to be 10% of cost.

depreciation expense per month:

buildings = ($122,000 x 90%) x 4% x 1/12 = $366 x 3 = $1,098

equipment = ($18,000 x 90%) x 10% x 1/12 = $135 x 3 = $405

Dr Depreciation expense 1,503

Cr Accumulated depreciation building 1,098

Cr Accumulated depreciation equipment 405

4. Unearned Rent Revenue of $3,472 was earned prior to August 31.

Dr Unearned revenue 3,472

Cr Rent revenue 3,472

5. Salaries of $392 were unpaid at August 31.

Dr Wages expense 392

Cr Cash 392

6. Rentals of $873 were due from tenants at August 31.

Dr Accounts receivable 873

Cr Rent revenue 873

7. The mortgage interest rate is 8% per year.

interest expense per month = $62,000 x 8% x 1/12 = $413.33 x 3 = $1,240

Dr Interest expense 1,240

Cr Interest payable 1,240

B. Prepare an adjusted trial balance on August 31.

first we must calculate the quarter's profit:

Rent Revenue $82,545

Salaries and Wages Expense ($45,192)

Utilities Expenses ($9,200 )

Maintenance and Repairs Expense ($3,600)

Insurance expense ($2,700)

Supplies expense ($8,457)

Depreciation expense ($1,503)

Interest expense ($1,240)

net income = $10,653

retained earnings = $9,000 - $5,000 + $10,653 = $14,653

Kingbird Resort

Balance Sheet

For the Year Ended August 31, 202x

Assets:

Cash $25,508

Accounts receivable $873

Prepaid Insurance $8,100

Supplies $443

Land $22,000

Buildings $120,902

Equipment $17,595

Total assets: $195,421

Liabilities and Stockholders' Equity:

Accounts Payable $10,800

Unearned Rent Revenue $7,428

Interest payable $1,240

Mortgage Payable $62,000

Common Stock $99,300

Retained Earnings $14,653

Total liabilities and stockholders' equity: $195,421