Question

The prepaid insurance account shows a debit of $6,336, representing the cost of a 2-year fire insurance policy dated August 1 of the current year. 2.

On November 1. Rent Revenue was credited for $1,809, representing revenue
from a subrental for a 3-month period beginning on that date.
3. Purchase of advertising materials for $767 during the year was
recorded in the Advertising Expense account.
On December 31. Advertising materials of $277 are on hand.
4. Interest of $714 has accrued on notes payable. The interest will
be paid in January of the next year.
Instructions:
Prepare the following in general journal form.
A) The adjusting entry for each item.
B) The reversing entry for each item where appropriate.

Answer 1

Answer and Explanation:

The Journal entries are shown below:-

1. Insurance Expense Dr, $1,320 ($6,336 ÷ 24 × 5)

To Prepaid Insurance $1,320

(Being insurance expense is recorded)

No Reversing Entry required

2. Rental Revenue $603 ($1,809 ÷ 3)

To Deferred Rental Revenue $603

(Being rental revenue is recorded)

Reversing entry in the next year will be:

Deferred Rental Revenue Dr, $603

To Rental Revenue $603

(Being deferred rental revenue is recorded)

3. Advertising Materials Inventory Dr, $277

To Advertising Expense $277

(Being advertising material inventory is recorded)

The reversing entry would be:

Advertising Expense Dr, $277

To Advertising Materials Inventory $277

(Being advertising expense is recorded)

4. Interest Receivable Dr, $714

To Interest Income $714

(Being interest receivable is recorded)

Interest income Dr, $714

To Interest receivable $714

(Being interest income is recorded)