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Gary Company follows the practice of recording prepaid expenses and unearned revenues in balance sheet accounts. Gary’s annual accounting period ends on December 31, 2008 The following information concerns the adjusting entries to be recorded as of that date:
a. The Office Supplies account started this year with a $4,000 balance. During 2008, the company purchased supplies for $8,400 which was added to the Office Supplies account. The inventory of supplies available at December 31, 2008 totaled $1,800.
b. An analysis of the company's insurance policies provided these facts:
Policy Date of Purchase Months of Coverage Cost
A January 1, 2007 24 $4,800
B April 1, 2008 36 $3,600
C July1, 2008 12 $5,400
The total premium for each policy was paid in full (for all months) at the purchase date. and the Prepaid Insurance account was debited for the full cost. (Year-end adjusting entries for Prepaid Insurance were properly recorded in all prior years.)
c. The company has 20 employees, who earn a total of $3,200 in salaries each working day. They are paid each Monday for their work in the five-day work week ending on the previous Friday. Assume that December 31, 2008 is a Tuesday, and all 20 employees worked the first two days of that week. Because New Year's Day is a paid holiday, they will be paid salaries for five full days on Monday, January 6, 2009.
d. The company purchased a building on January 1, 2008. It cost $785,000 and is expected to have $35,000 salvage value at the end of its predicted 25-year life. Annual depreciation Is $30,000.
e. Since the company is not large enough to occupy the entire building it owns, it rented space to a tenant at $2,400 per month, starting on October 1, 2008. The rent was paid on time on October 1, and November 1, and the amount received was credited to the Rent Earned account. However, the tenant has not paid the December rent. The company has worked out an agreement with the tenant who has promised to pay both the December and January rent in full on January 15. The tenant has agreed to not fall behind again.
f. On December 1, the company rented space to another tenant for $3,200 per month. The tenant paid six months' rent in advance on that date. The payment was recorded with a credit to the Unearned Rent account.
1. Use the information to prepare adjusting entries as of December 31, 2008.
2. Prepare journal entries to record the first subsequent cash transactions in 2009 for parts c and e.