Zola Corporation records adjustments each month before preparing monthly financial statements. The following selected account balances on

Question:

Zola Corporation 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:

May 31,June 30,

                                                        2012                2012

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, 2012. Identify and analyze the adjustment for rent on June 30, 2012.

2. What amount was prepaid on April 1, 2012? Explain your answer.

3. The equipment was purchased on September 30, 2011, 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, 2012.

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

5. Zola signed a two-year note on September 30, 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 for interest expense on June 30, 2012.

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

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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