Question

On June 1, 2019, Cain Company, a new firm, paid $8,400 rent in advance for a seven-month period. The $8,400 was debited to the Prepaid Rent account. On June 1, 2019, the firm bought supplies for $10,250. The $10,250 was debited to the Supplies account. An inventory of supplies at the end of June showed that items costing $5,960 were on hand. On June 1, 2019, the firm bought equipment costing $72,900. The equipment has an expected useful life of 9 years and no salvage value. The firm will use the straight-line method of depreciation. Prepare end-of-June adjusting entries for Cain Company.

Answer 1

Answer:

Paid $8,400 rent in advance for a seven-month period.

Rent Account $8,400 (debit)

Profit and Loss $ 8,400 (credit)

An inventory of supplies at the end of June showed that items costing $5,960 were on hand.

Inventory $5,960 (debit)

Profit and Loss $ 5,960 (credit)

The firm bought equipment costing $72,900. The equipment has an expected useful life of 9 years and no salvage value.

Purchase of Equipment

Equipment $72,900 (debit)

Cash $72,900 (credit)

Depreciation on Equipment

Depreciation expense  $ 675 (debit)

Accumulated for Depreciation  $ 675 (credit)

Explanation:

Paid $8,400 rent in advance for a seven-month period.

Adjust the Rent Expense Account and the Profit and Loss Account

An inventory of supplies at the end of June showed that items costing $5,960 were on hand.

Recognise amounts to inventory and Post to Profit and Loss

The firm bought equipment costing $72,900. The equipment has an expected useful life of 9 years and no salvage value.

Purchase of Equipment

Equipment $72,900 (debit)

Cash $72,900 (credit)

Depreciation on Equipment

Depreciation expense  $ 675 (debit)

Accumulated for Depreciation  $ 675 (credit)

Depreciation = (Cost-Salvage Value)/Useful Life

                       =( $72,900 - 0) / 9

                       = $ 8100

June Depreciation = $ 8100×1/12

                                = $ 675

Answer 2

Answer:

Cain Company

Adjusting entries

June 30 2019

1. To record rental expense during June 2019

Rent Expenses                                          Debit            $ 1,200

Prepaid Rent                                             Credit                          $ 1.200

2. To record supplies consumed during June 2019

Supplies Expenses/ Consumed              Debit             $ 4,290

Supplies                                                    Credit                             $ 4,290

3. To record depreciation expenses for June 2019

Depreciation expenses                            Debit             $ 675

Allowance for depreciation                      Credit                             $ 675

Explanation:

Computation of values for adjusting entries

Rent Expense

Rental paid in advance                                        $ 8,400

Period of benefit                                                     7 months

Monthly cost $ 8,400/ 7                                      $ 1,200

Supplies expense

Purchase of supplies                                            $ 10.250

Ending inventory of supplies                                $  5,960

Supplies consumed                                             $ 4,290

Depreciation expenses

Cost of equipment                                               $ 72,900

Estimated useful Life                                                  9 years

Annual depreciation $ 72,900/9                         $ 8,100

Depreciation expense for 1 month                      $    675