Holes ‘R’ Us, a blasting services company, has the following information available on December 31, the last day of the company’s fiscal year. Each item involves an adjusting entry that must be made before financial statements can be prepared and the books closed for the year. Show how these adjusting entries would be entered into the accounting system.
1. A $35,000 note payable, incurring 9% interest, has been outstanding for the entire year. The note payable was properly recorded when it arose, but no entries regarding this event have been made since.
2. A $12,000 check was received on November 2 from a tenant that subleases part of the company’s headquarters building. The amount was in payment of rent for November, December, and January. When the check was received, Cash was increased and Rent Revenue was increased. (Hint: Use a liability account titled Unearned Rent.)
3. On April 1 of the current year, the company purchased a two-year fire insurance policy for $7,200. When the policy was purchased, Cash was decreased and Prepaid Insurance was increased for the entire amount.
4. Wear and tear on the buildings and machinery for the year is estimated to be $42,000.