Question

Use the information given below to pass ONLY the adjusting entries at the time of preparing the financial statements. The financial statements are prepared at the end of every month.

This is the beginning of January month and the firm undertakes the following transaction on 01^st of January. Pass all relevant adjusting entries for the below transactions at the end of month of January.

1. Pays advance rent of $12,000 to Mr. Jones for using the premises for the next twelve (12) months.
2. Purchase machine by making cash payment of $ 100,000 upfront. The machine will be completely depreciated over the next 10 years and the firm will charge equal annual depreciation expense every year.
3. The company borrows $120,000 at 10% annual coupon (interest cost) for 5 years. The annual coupon payments will be made after the end of every year for the next 5 years.

Answer 1

	Adjusting Entries
	S.No.	Date	Account Titles	Debit $	Credit $
	a.	31 January	Rent Expense	1,000
			Prepaid rent		1,000
			( 12,000 / 12 )
	b.	31 January	Depreciation Expense	833
			Accumulated Depreciation- Machine		833
			( 100,000 / 10 ) x 1/12
	c.	31 January	Interest Expense	1,000
			Interest Payable		1,000
			( 120,000 x 10% x 1/12 )