Claireco is at the end of their fiscal year (12/31/16). You have been given the
ID: 2492498 • Letter: C
Question
Claireco is at the end of their fiscal year (12/31/16). You have been given the following information to help you make the year end adjusting entries: Claireco owed $18,000 in interest to the bank on 12/31/16. The interest is payable when the note is due on 2/28/17. On 12/15/16, Claireco sub-leased office space it did not need to a lessee. The lease agreement call for monthly rental of $20, 000 per month payable in advance for one year. The lessee paid $20, 000 to Claireco on 12/15/16. The bookkeeper debited Cash and credited Unearend Rent Revenue. An libility insureance policy was purchased on 9/1/15 for $12,000. The bookkeeper paid the bill and debited Pre-paid Insureance and Credited Cash to record the transaction on 9/1/15. No other entries have been made concerning this transaction. Required: Make the required adjusting entries on 12/31/16 and site the accounting principle that would have been violated if the entry had not been made.Explanation / Answer
A. Interest expense 18000
Interest payable 18000
------------convervatim & accrual that will result in less net income and/or less asset amount
B. unearned rent revenue 10000
rent revenue 10000
( rental income for 15 days recognised) matching concept
c. as insurance is purchased for one year for 2015, total amount paid is to be expensed out
insurance expense 12000
prepaid insurance 12000