Taggart Corp. records adjustments each month before preparing monthly financial statements. The following selected account balances on May 31, 2012 and June 30, 2012, reflect month-end adjustments:

Required

1. The company purchased a 36-month insurance policy on June 1, 2011. Identify and analyze the adjustment necessary for insurance on June 30, 2012.

2. What was the original cost of the insurance policy? Explain your answer.

3. The equipment was purchased on February 1, 2011, 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, 2012.

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, 2011, 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, 2012.

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

Transcribed Image Text:

May 31, 2012 June 30, 2012 Prepaid Insurance Equipment $3,450 $3,600 9,600 9,600 1,360 Accumulated Depreciation Notes Payable Interest Payable 1,280 9,600 9,600 2,448 2,304