Reconstruction of Adjustments from Account Balances Taggart Corp. records adjustments each month before preparing monthly fi nancial statements.

The following selected account balances on May 31, 2010, and June 30, 2010, refl ect month-end adjustments:

May 31, 2010 June 30, 2010 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 Required 1. The company purchased a 36-month insurance policy on June 1, 2009. Identify and analyze the adjustment necessary for insurance on June 30, 2010.
2. What was the original cost of the insurance policy? Explain your answer.
3. The equipment was purchased on February 1, 2009, for $9,600. Taggart uses straight-line depreciation and estimates that the equipment will have no salvage value. Identify and analyze the adjustment necessary for depreciation on June 30, 2010.
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, 2009, 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. Identify and analyze the adjustment necessary for interest on June 30, 2010.
6. What is the monthly interest rate on the loan? Explain your answer.

AppendixLO1