Question

In its first year of operations, Lien Company entered into the following transactions, among others: a   1 January: Bought equipment, $105 000. b   31 March: Prepaid one year’s rent, $24 000.
c   1 July: Took out a one-year loan from the bank at an annual interest rate of 8 per cent, $20 000.
d   1 August: Received payment for services not yet rendered, $12 000.
On 31 December, Lien has earned $8000 of the $12 000 in transaction 4 and has incurred but not recorded $450 of electricity. Lien prepares adjusting entries on an annual basi

Answer 1

	Journal Entries
	Account titles & Explanations					Debit	Credit
1-Jan	Equipment					105,000
	cash						105,000
31-Mar	Prepaid rent					24,000
	cash						24,000
1-Jul	bank loan					20,000
	cash						20,000
1-Aug	Cash					12,000
	unearned revenue						12,000
	Adjusting entries
	Account titles & Explanations					Debit	Credit
31-Dec	Depreciation expense					15,000
	Accumulated depreciation						15,000
	Rent expense					18000
	prepaid rent (24000/12)*9						18,000
	interest expense					800
	interest payable (20000*8%*6/12)						800
	unearned revenue					8,000
	revenue earned						8,000
	utilities expense					450
	Accounts payable						450