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 $12,000 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 $42,400; received $40,704 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 $5,200 per month; received the entire fee of $62,400 in advance.

1 Purchased office equipment for $23,000 from Office Outfitters; issued a two-month, 12 percent note in payment. The equipment is estimated to have a useful life of five years and a $1,400 salvage value. The equipment will be depreciated using the straight-line method.

1 Purchased a one-year insurance policy and issued Check 102 for $1,704 to pay the entire premium.

3 Purchased office furniture for $11,560 from Furniture Warehouse; issued Check 103 for $8,460 and agreed to pay the balance in 60 days. The equipment has an estimated useful life of four years and a $1,000 salvage value. The office furniture will be depreciated using the straight-line method.

5 Purchased office supplies for $1,950 with Check 104. Assume $870 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?

5 Jul 31, 2019 Depreciation expense—Office equipment Accumulated depreciation—Office equipment

6 Jul 31, 2019 Insurance expense Prepaid insurance

7 Jul 31, 2019 Depreciation expense—Office equipment Accumulated depreciation—Office equipment

Can you help me with these three and with the Analyze?

Answer 1

• All working forms part of the answer
• All journal entries required (including all the adjusting journal entries on 31^st Jul) are done below:

Date	Accounts Title	Debit	Credit	Working
01-Jul	Prepaid Rent	$                        12,000.00		[12000 for 6 months]
	Cash		$                               12,000.00
01-Jul	Cash	$                        40,704.00		[net cash received]
	Accrued Interest	$                          1,696.00		[advance interest]
	Notes payable		$                               42,400.00	[notes payable]
01-Jul	Cash	$                        62,400.00		[received for 6 months]
	Unearned Accounting Fees		$                               62,400.00
01-Jul	Office Equipment	$                        23,000.00
	Notes payable		$                               23,000.00	[interest expense to be adjusted]
01-Jul	Prepaid Insurance	$                          1,704.00		[paid for 12 months]
	Cash		$                                 1,704.00
03-Jul	Furniture	$                        11,560.00
	Cash		$                                 8,460.00
	Accounts payable		$                                 3,100.00
05-Jul	Office Supplies	$                          1,950.00
	Cash		$                                 1,950.00
31-Jul	Rent Expense	$                          2,000.00		[1 months rent expired]
	Prepaid Rent		$                                 2,000.00	[12000/6months]
31-Jul	Interest expense	$                              424.00		[interest on National bank’s notes payable]
	Accrued Interest		$                                     424.00	[1696x1/4months]
31-Jul	Accounting Fees revenue earned	$                          5,200.00		[1 month revenue earned]
	Unearned Accounting Fees		$                                 5,200.00
31-Jul	Depreciation expense - Equipment	$                              360.00		([cost – salvage]/life) x 1month
	Accumulated Depreciation - Equipment		$                                     360.00	[(23000-1400)/60months] x1month
31-Jul	Insurance expense	$                              142.00		1 month insurance expired
	Prepaid Insurance		$                                     142.00	$1704x1/12months
31-Jul	Depreciation expense - Furniture	$                              220.00
	Accumulated Depreciation - Furniture		$                                     220.00	[11560-1000]x1/48months]
31-Jul	Supplies expense	$                         1,080.00		[purchased – ending balance]
	Office Supplies		$                                 1,080.00	[1950-870]
31-Jul	Interest expense	$                          1,380.00		[interest expense on 2nd note payable]
	Interest payable		$                                 1,380.00	[23000 x 12% x 1/2months]

• Analyse part:

Unearned Accounting Fees received in cash = $5200 x 12 months = $ 62,400
Less: Earned Fees for the month of July 2019 = $ 5,200

Balance reflected in Unearned Accounting Fees at July 31, 2019 = 62400 – 5200 = $ 57,200

OR

Balance reflected in Unearned Accounting Fees at July 31, 2019 = 5200 x 11 months = $ 57,200