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Reconstruction of Adjusting Entries from Account Balances Taggart Corp. records adjusting entries each month before preparing monthly financial statements. The following selected account balances are taken from its trial balances on June 30, 2016. The "unadjusted columns set forth the general ledger balances before the adjusting entries were posted. The "adjusted columns reflect the month-end adjusting entries. Unadjusted Adjusted Debit Credit Debit Credit Account Title Prepaid Insurance Equipment Accumulated Depreciation Notes Payable Interest Payable $3,600 9,600 $1,280 $3,450 9,600 $1,360 9,600 9,600 2,304 2,448 Required: 1. The company purchased a 36-month insurance policy on June 1, 2015, Reconstruct the adjusting journal entry for insurance on June 30, 2016. How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect on the financial statement. Journal Balance Sheet Income Statement Stockholders Net Description Debit Credit Assets Liabilities Equity Revenues Expenses Income 2. What was the original cost of the insurance policy? 3. The equipment was purchased on February 1, 2015, for $9,600. Taggart uses straight-line depreciation and estimates that the equipment will have no salvage value. Reconstruct the adjusting journal entry for depreciation on June 30, 2016, How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting for decrease (or negative effect), '+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement. Journal Balance Sheet Income Statement Stockholders' Net Description Debit Credit Assets Liabilities Equity Revenues Expenses Income 4. What is the equipment's estimated useful life in months? months 5. Taggart signed a two-year note payable on February 1, 2015, 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 on June 30, 2016. How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting "-" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement. Journal Balance Sheet Income Statement Stockholders' Net Description Debit Credit Assets = Liabilities Equity Revenues Expenses Income + 6. What is the monthly interest rate on the loan? Assume a 360-day year. Enter the amount as a percent, rounded to one decimal place. %

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