Several transactions for Trolley, Inc. are presented below. The company adjusts its books only at year-end. a. On August 1, the company rented some land from another company for $2,660 for a three-year time period. Trolley charged an expense account on August 1.
b. On February 1, Trolley received $8,000 for a four-year technical service contract. Trolley is performing the services evenly over the four-year period. The company credited a liability account, Unearned Service Revenue, on February 1.
c. On May 1, Trolley loaned $3,400 to another company on a 12%, one-year note.
d. The weekly (five-day) payroll of Trolley amounts to $2,500. All employees are paid at the close of business each Friday. December 31 falls on a Thursday.
Required:
Prepare the adjusting entries for December 31.

See explanation

Explanation:

It should be noted that adjusting entries are normally made at the conclusion of an accounting period so that the income and expenditure will be allocated to the particular period when they took place.

Prepaid rent is calculated as:

= 2660 × (36-5)/36

= 2660 × 31/36

= 2290.56

Unearned revenue:

= 8000 × 11/48

= 1833.33

Accrued interest:

= 3400 × 12% × 8/12

= 3400 × 0.12 × 8/12

= 272

Salary expense:

= 2500 × 4/5

= 2000

The adjusting entry has been attached.

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