Question

On July 1, 2019, Tim Stein established his own accounting practice. Selected transactions for the first few days of July follow.

DATE		TRANSACTIONS
July	1	Signed a lease for an office and issued Check 101 for $13,500 to pay the rent in advance for six months.
	1	Borrowed money from Second National Bank by issuing a four-month, 6 percent note for $28,800; received $28,224 because the bank deducted the interest in advance.
	1	Signed an agreement with Carter Corp. to provide accounting and tax services for one year at $6,200 per month; received the entire fee of $74,400 in advance.
	1	Purchased office equipment for $14,000 from Office Outfitters; issued a two-month, 9 percent note in payment. The equipment is estimated to have a useful life of four years and a $1,520 salvage value. The equipment will be depreciated using the straight-line method.
	1	Purchased a one-year insurance policy and issued Check 102 for $1,644 to pay the entire premium.
	3	Purchased office furniture for $21,040 from Furniture Warehouse; issued Check 103 for $15,440 and agreed to pay the balance in 60 days. The equipment has an estimated useful life of six years and a $1,600 salvage value. The office furniture will be depreciated using the straight-line method.
	5	Purchased office supplies for $1,850 with Check 104. Assume $820 of supplies are on hand July 31, 2019.

Required:

1. Record the transactions in the general journal. Assume that the firm initially records prepaid expenses as assets and unearned income as a liability for the year 2019.
2. Record the adjusting journal entries that must be made on July 31, 2019.

Analyze:
What balance should be reflected in Unearned Accounting Fees at July 31, 2019?

Answer 1

July Transactions:

Date	Account title and explanation	Debit	Credit
July 1	Prepaid rent	$13,500
	Cash		$13,500
	[To record rent paid in advance]
July 1	Cash	$28,224
	Prepaid expense	$576
	Notes payable		$28,800
	[To record borrwed money in exchange of notes]
July 1	Cash	$74,400
	Unearned service revenue		$74,400
	[To record fees received in advance]
July 1	Office equipment	$14,000
	Notes payable		$14,000
	[To record purchase of office equipment]
July 1	Prepaid insurance	$1,664
	Cash		$1,644
	[To record insurance paid in advance]
July 3	Office furniture	$21,040
	Cash		$15,440
	Accounts payable		$5,600
	[To record purchase of office furniture]
July 5	Office supplies	$1,850
	Cash		$1,850
	[To record purchase of office supplies]

Adjusting Entries:

Date	Account title and explanation	Debit	Credit
July 31	Rent expense (13,500/6)	$2,250
	Prepaid rent		$2,250
	[To record rent expense]
July 31	Interest expense (28,800 x 6% x 1/12)	$144
	Prepaid expense		$144
	[To record interest expense]
July 31	Unearned service revenue	$6,200
	Service revenue		$6,200
	[To record revenue from unearned]
July 31	Depreciation expense [(14,000-1,520)/4 ] x 1/12	$260
	Accumulated depreciation-office equipment		$260
	[To record depreciation expense on office equipment]
July 31	Insurance expense (1,644/12)	$137
	Prepaid insurance		$137
	[To record insurance expense]
July 31	Depreciation expense [(21,040-1,600)/6] x 1/12	$270
	Accumulated depreciation-office furniture		$270
	[To record depreciation expense on office furniture]
July 31	Supplies expense [1,850-820]	$1,030
	Office supplies		$1,030
	[To record supplies expense]

Analysis:

Balance in Unearned accounting fees = 74,400 - 6,200 = $68,200