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 $14,100 to pay the rent in advance for six months. 1 Borrowed money from Second National Bank by issuing a four-month, 12 percent note for $32,800; received $31,488 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 $6,600 per month; received the entire fee of $79,200 in advance. 1 Purchased office equipment for $26,400 from Office Outfitters; issued a two-month, 6 percent note in payment. The equipment is estimated to have a useful life of six years and a $1,920 salvage value. The equipment will be depreciated using the straight-line method. 1 Purchased a one-year insurance policy and issued Check 102 for $1,692 to pay the entire premium. 3 Purchased office furniture for $18,400 from Furniture Warehouse; issued Check 103 for $10,400 and agreed to pay the balance in 60 days. The equipment has an estimated useful life of five years and a $1,000 salvage value. The office furniture will be depreciated using the straight-line method. 5 Purchased office supplies for $1,930 with Check 104. Assume $860 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	14100
	Cash		14100
	(To record rent paid in advance)
Jul. 1	Cash	31488
	Prepaid interest	1312
	Note payable		32800
	(To record borrowing against note)
Jul. 1	Cash	79200
	Unearned accounting fees		79200
	(To record fees received in advance)
Jul. 1	Office equipment	26400
	Note payable		26400
	(To record purchase of office equipment)
Jul. 1	Prepaid insurance	1692
	Cash		1692
	(To record insurance paid in advance)
Jul. 3	Office furniture	18400
	Cash		10400
	Accounts payable		8000
	(To record purchase of office furniture)
Jul. 5	Office supplies	1930
	Cash		1930
	To record purchase of office supplies)

Adjusting entries:

Date	General Journal	Debit	Credit
Jul. 31	Rent expense ($14100/6)	2350
	Prepaid rent		2350
	(To record rent expired)
Jul. 31	Interest expense ($1312/4)	328
	Prepaid interest		328
	(To record interest expense)
Jul. 31	Unearned accounting fees	6600
	Fees revenue		6600
	(To record fees revenue earned)
Jul. 31	Interest expense ($26400 x 6% x 1/12)	132
	Interest payable		132
	(To record interest accrued on note)
Jul. 31	Depreciation expense [($26400 - $1920) x 1/72]	340
	Accumulated depreciation-office equipment		340
	(To record depreciation on office equipment)
Jul. 31	Insurance expense ($1692/12)	141
	Prepaid insurance		141
	(To record insurance expired)
Jul. 31	Depreciation expense [($18400 - $1000) x 1/60]	290
	Accumulated depreciation-office furniture		290
	(To record depreciation on office furniture)
Jul. 31	Office supplies expense ($1930 - $860)	1070
	Office supplies		1070
	(To record office supplies used)

Analyze:

Balance in unearned accounting fees on July 31, 2019: $79200 - $6600 = $72600