Question

QUESTION 2 Brown Limited is about to prepare its financial statements for the year ended December 31, 20X1. The accountant prepares adjusting journal entries only at year end. For each of the following situations, record the journal entry or entries on the specified dates:

a)       At the end of 20X1, it was determined that a legal firm that Brown Limited uses had performed some litigation services for Brown but had not yet invoiced Brown for the work. Brown’s accountant estimated that the legal fees owed to the law firm at the end of 20X1 amounted to $14,000 and had not yet been recorded. December 31, 20X1

b)      On January 28, 20X2, the services provided by the law firm mentioned above had been completed and the total amount of the legal fees provided by the law firm over the past several months was $22,000. January 28, 20X2

c)       Assume that the entry recorded in part (a) above had been reversed on January 1, 20X2. In that case, redo the entry that would have been recorded in part (b). January 28, 20X2

d)      On January 1, 20X1 the company had a balance in its supplies asset account of $9,000. During the first half of the year, supplies costing $6,000 were purchased and when this occurred, the accountant recorded a debit to supplies expense for the full amount. In the second half of the year, supplies costing $8,000 were purchased, but this time, the accountant debited the supplies asset account. At the end of the year, it was determined that the supplies on hand amounted to $8,200. Based on the above the year end adjusting entry would be: December 31, 20X1

e)      On November 1, 20X1 the company signed a lease in order to rent some new office space. The rent was $8,000 per month but none of the rent was paid in 20X1. In November 20X1 and in December 20X1 the accountant recorded a debit to prepaid rent and a credit to rent payable for $8,000 in each month. December 31, 20X1

f)        Following from the above, on January 31, 20X2, in order to restore the reputation of the company with its landlord the company overpaid rent on the new office space by paying the landlord for the first time. The amount paid was $35,000. Record the journal entry for this payment. January 31, 20X2

g)       On June 1, 20X1 a company borrowed $200,000 from a bank. The bank loan provides no fixed date for the repayment of the principal but the loan bears interest at 4%. Other than the receipt of the loan, no entries relating to it were recorded during 20X1. December 31, 20X1

h)      With regard to the loan above, on June 30, 20X2 the company paid all interest owing to date. This was the first time that the company paid the bank any amount. June 30, 20X2

i)        On July 1 20X1, the company bought equipment costing $10,000. The equipment had a useful life of 10 years and no residual value but when it was bought, the accountant recorded a debit to miscellaneous expense and a credit to cash. December 31, 20X1

Answer 1

	Date	Particulars		Debit	Credit
a	December 31, 20X1	Legal fees expense		$        14,000
		Legal fees payable account			$        14,000
b	January 28, 20X2	Legal fees expense		$          8,000
		Legal fees payable account		$        14,000
		Accounts Payable			$        22,000
c.	January 28, 20X2	Legal fee expense		$        22,000
		Accounts payable			$        22,000
d	December 31, 20X1	Opening balance	$          9,000
		second half of the year	$          8,000
		supplies on hand	$          8,200
		supplies expense	$          8,800
		supplies expense		$          8,800
		supplies asset			$          8,800
e	November 20X1	Rent expense		$          8,000
		Prepaid rent			$          8,000
		Rectified entry passed by the accountant
	December 31, 20X1	Rent expense		$          8,000
		Prepaid rent			$          8,000
		Rectified entry passed by the accountant
f	January 31, 20X2	Rent expense		$          8,000
		Rent payable		$        16,000
		Prepaid rent		$        11,000
		Cash			$        35,000
g	December 31, 20X1	Interest on loan		$          4,667
		Interest payable on loan			$          4,667
h	June 30, 20X2	Interest on loan		$          4,000
		Interest payable on loan		$          4,667
		Cash			$          8,667
g	On July 1 20X1,	Equipment		$        10,000
		Miscellaneous expense			$        10,000