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 $13,950 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 $31,200; received $30,576 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 $6,500 per month; received the entire fee of $78,000 in advance. 1 Purchased office equipment for $17,200 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 $1,840 salvage value. The equipment will be depreciated using the straight-line method. 1 Purchased a one-year insurance policy and issued Check 102 for $1,680 to pay the entire premium. 3 Purchased office furniture for $22,120 from Furniture Warehouse; issued Check 103 for $15,520 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 $1,910 with Check 104. Assume $850 of supplies are on hand July 31, 2019. Required: 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. 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

Date	General Journal	Debit	Credit
Jul. 1	Prepaid rent	13950
	Cash		13950
	(To record rent paid in advance)
Jul. 1	Cash	30576
	Prepaid interest	624
	Note payable		31200
	(To record borrowing against note)
Jul. 1	Cash	78000
	Unearned accounting fees		78000
	(To record fees received in advance)
Jul. 1	Office equipment	17200
	Note payable		17200
	(To record purchase of office equipment)
Jul. 1	Prepaid insurance	1680
	Cash		1680
	(To record insurance paid in advance)
Jul. 3	Office furniture	22120
	Cash		15520
	Accounts payable		6600
	(To record purchase of office furniture)
Jul. 5	Office supplies	1910
	Cash		1910
	(To record purchase of office supplies)

Ajusting journal entries:

Date	General Journal	Debit	Credit
Jul. 31	Rent expense ($13950/6)	2325
	Prepaid rent		2325
	(To record rent expired)
Jul. 31	Interest expense ($624/4)	156
	Prepaid interest		156
	(To record interest expense)
Jul. 31	Unearned accounting fees	6500
	Fees revenue		6500
	(To record fees revenue earned)
Jul. 31	Interest expense ($17200 x 9% x 1/12)	129
	Interest payable		129
	(To record interest accrued on note)
Jul. 31	Depreciation expense [($17200 - $1840) x 1/48]	320
	Accumulated depreciation-office equipment		320
	(To record depreciation on office equipment)
Jul. 31	Insurance expense ($1680/12)	140
	Prepaid insurance		140
	(To record insurance expired)
Jul. 31	Depreciation expense [($22120 - $1600) x 1/72]	285
	Accumulated depreciation-office furniture		285
	(To record depreciation on office furniture)
Jul. 31	Office supplies expense ($1910 - $850)	1060
	Office supplies		1060
	(To record office supplies used)

Analyze:

Balance in unearned accounting fees on July 31, 2019: $78000 - $6500 = $71500