Reconstruction of Adjustments from Account Balances Zola Corporation 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:

Account Title May 31, 2010 June 30, 2010 Prepaid Rent $4,000 $3,000 Equipment 9,600 9,600 Accumulated Depreciation 800 900 Notes Payable 9,600 9,600 Interest Payable 768 864 Required 1. The company paid for a six-month lease on April 1, 2010. Identify and analyze the adjustment for rent on June 30, 2010.

2. What amount was prepaid on April 1, 2010? Explain your answer.

3. The equipment was purchased on September 30, 2009, for $9,600. Zola uses straight-line depreciation and estimates that the equipment will have no salvage value. Identify and analyze the adjustment for depreciation on June 30, 2010.

4. What is the equipment’s estimated useful life in months? Explain your answer.

5. Zola signed a two-year note on September 30, 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 for interest expense on June 30, 2010.

6. What is the monthly interest rate on the loan? Explain your answer.

AppendixLO1