For example, the sticky-wage theory asserts that output prices adjust more quickly to changes in the price level than wages do, in part because of long-term wage contracts. Suppose a firm signs a contract agreeing to pay its workers $15 per hour for the next year, based on an expected price level of 100. If the actual price level turns out to be 110, the firm's output prices willrise , and the wages the firm pays its workers will remain fixed at the contracted level. The firm will respond to the unexpected increase in the price level byreducing the quantity of output it supplies. If many firms face similarly rigid wage contracts, the unexpected increase in the price level causes the quantity of output supplied tofall below the natural level of output in the short run.

The ledger of laurie rental agency on march 31 of the current year includes the following selected accounts before adjusting entries have been prepared. debit credit prepaid insurance $ 5,400 supplies $ 4,500 equipment 40,000 accumulated depreciation—equipment $12,600 notes payable 25,000 unearned rent revenue 11,100 rent revenue 90,000 interest expense –0– salaries and wages expense 20,000 an analysis of the accounts shows the following. 1. the equipment depreciates $600 per month. 2. two-thirds of the unearned rent revenue was earned during the quarter. 3. the note payable is dated january 1 and bears 12% interest. 4. supplies on hand total $800. 5. the insurance policy is a two-year policy dated january 1. instructions: a. prepare the adjusting entries at march 31, assuming that adjusting entries are made quarterly. additional accounts are: depreciation expense, insurance expense, interest payable, and supplies expense. b. compute the ending balances for prepaid insurance, unearned rent revenue, and rent revenue, and indicate in which financial statement those items will be reported.