Zola Corporation records adjusting entries each month before preparing monthly financial statements. The following selected account balances are taken from its trial balances on June 30, 2014. 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 paid for a six-month lease on April 1, 2014. Reconstruct the adjusting journal entry for rent on June 30, 2014.
2. What amount was prepaid on April 1, 2014? Explain your answer.
3. The equipment was purchased on September 30, 2013, for $9,600. Zola uses straight-line depreciation and estimates that the equipment will have no salvage value. Reconstruct the adjusting journal entry for depreciation on June 30, 2014.
4. What is the equipment’s estimated useful life in months? Explain your answer.
5. Zola signed a two-year note on September 30, 2013, 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 expense on June 30, 2014.
6. What is the monthly interest rate on the loan? Explain your answer.