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P3-1A Meyer Co. follows the practice of recording prepaid expenses

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Meyer Co. follows the practice of recording prepaid expenses and unearned revenues in balance sheet accounts.

The company’s annual accounting period ends on December 31, 2011. The following information
concerns the adjusting entries to be recorded as of that date.

a. The Office Supplies account started the year with a $3,000 balance. During 2011, the company purchased supplies for $12,400, which was added to the Office Supplies account. The inventory of supplies available at December 31, 2011, totaled $2,640.

b. An analysis of the company’s insurance policies provided the following facts.

Months of
Policy Date of Purchase Coverage Cost
A April 1, 2010 24 $15,840
B April 1, 2011 36 13,068
C August 1, 2011 12 2,700

The total premium for each policy was paid in full (for all months) at the purchase date, and the
Prepaid Insurance account was debited for the full cost. (Year-end adjusting entries for Prepaid
Insurance were properly recorded in all prior years.)

c. The company has 15 employees, who earn a total of $2,100 in salaries each working day. They are
paid each Monday for their work in the five-day workweek ending on the previous Friday. Assume
that December 31, 2011, is a Tuesday, and all 15 employees worked the first two days of that week.
Because New Year’s Day is a paid holiday, they will be paid salaries for five full days on Monday,
January 6, 2012.

d. The company purchased a building on January 1, 2011. It cost $855,000 and is expected to have a
$45,000 salvage value at the end of its predicted 30-year life. Annual depreciation is $27,000.
e. Since the company is not large enough to occupy the entire building it owns, it rented space to a tenant at $2,400 per month, starting on November 1, 2011. The rent was paid on time on November 1, and the amount received was credited to the Rent Earned account. However, the tenant has not paid the December rent. The company has worked out an agreement with the tenant, who has promised to pay both December and January rent in full on January 15. The tenant has agreed not to fall behind again.

f. On November 1, the company rented space to another tenant for $2,175 per month. The tenant paid
five months’ rent in advance on that date. The payment was recorded with a credit to the Unearned
Rent account.

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