Reconstruction of Adjusting Entries from Account Balances Taggart Corp. records adjusting entries each month before preparing monthly financial statements.

The following selected account balances are taken from its trial balances on June 30, 2008.

The “unadjusted” columns set forth the general ledger balances before the adjusting entries were posted. The “adjusted” columns reflect the month-end adjusting entries.

Required 1. The company purchased a 36-month insurance policy on June 1, 2007 . Reconstruct the adjusting journal entry for insurance on June 30, 2008.
2. What was the original cost of the insurance policy? Explain your answer.
3. The equipment was purchased on February 1, 2007, for $9,600. Taggart uses straight-line depreciation and estimates that the equipment will have no salvage value. Reconstruct the adjusting journal entry for depreciation on June 30, 2008.
4. What is the equipment’s estimated useful life in months? Explain your answer.
5. Taggart signed a two-year note payable on February 1, 2007, for the purchase of the equipment.
Interest on the note accrues on a monthly basis and will be paid at maturity along with the principal amount of $9,600. Reconstruct the adjusting journal entry for interest on June 30, 2008.
6. What is the monthly interest rate on the loan? Explain your answer.

Transcribed Image Text:

Unadjusted Adjusted Account Title Debit Credit Debit Credit Prepaid Insurance $3,600 $3,450 Equipment 9,600 9,600 Accumulated Depreciation $1,280 $1,360 Notes Payable 9,600 9,600 Interest Payable 2,304 2,448