Question

Question: You decide to start a service business for attorneys. You will do process serving, investigations and other tasks for attorneys. You will charge $40 per hour for your service.

On Jan 1, 2019 you start your business with $50,000 in Cash and the company issues you 10,000 shares of stock in exchange.

The following transactions took place in January.

1/1/19 - You purchased a service vehicle for $18,000

1/1/19 - You purchased insurance for the vehicle for $1200 the policy expires dec 31, 2019.

1/1/19 - You prepaid rent for an office space until June 30, 2019 in the amount of $1800.

1/1/19 - You purchased a Surface Pro Tablet for $900. Microsoft sent you an invoice for the entire amount due 2/15.

1/5/19 - You signed a contract with Smith & Smith Law firm for 100 hours of service and the firm paid you upfront $4000.

1/6/19 - You purchased $1000 of office supplies on account from office depot. The entire bill is due Feb 15th.

The depreciation on the vehicle is $3600 per year and the depreciation on the surface pro is $180 per year.

   

You performed the following hours of service.

Jan - 20 hours

Feb - 15 hours

March - 35 hours

You paid all your bills on time.

INSTRUCTIONS: Record the journal entries and adjusting entries for Jan, Feb and March 2019.

Prepare the unadjusted trial balance as of March 31. Show the March adjusting entries and prepare the adjusted trial balance as of March 31.

Answer 1

1. In the books of .... :

Date	Account Titles	Debit	Credit
2019		$	$
Jan 1	Cash	50,000
	Common Stock		50,000
Jan 1	Vehicle	18,000
	Cash		18,000
Jan 1	Prepaid Insurance	1,200
	Cash		1,200
Jan 1	Prepaid Rent	1,800
	Cash		1,800
Jan 1	Office Equipment	900
	Accounts Payable: Microsoft		900
Jan 5	Cash	4,000
	Unearned Service Revenue		4,000
Jan 6	Office Supplies	1,000
	Accounts Payable: Office Depot		1,000
Feb 15	Accounts Payable: Microsoft	900
	Accounts Payable: Office Depot	1,000
	Cash		1,900

2.

Unadjusted Trial Balance March 31, 2019
Account Titles	Debit	Credit
	$	$
Cash	31,100
Office Supplies	1,000
Prepaid Insurance	1,200
Prepaid Rent	1,800
Vehicle	18,000
Accumulated Depreciation: Vehicle		0
Office Equipment	900
Accumulated Depreciation : Office Equipment		0
Accounts Payable		0
Unearned Service Revenue		4,000
Common Stock		50,000
Service Revenue		0
Rent Expense	0
Insurance Expense	0
Depreciation Expense	0
Totals	$ 54,000	$ 54,000

3. Adjusting entries:

Date	Account Titles	Debit	Credit
		$	$
Jan 31	Unearned Service Revenue ( 20 hours x $ 40)	800
	Service Revenue		800
Jan 31	Rent Expense ( 1,800 / 6)	300
	Prepaid Rent		300
Jan 31	Insurance Expense ( 1,200 / 12 )	100
	Prepaid Insurance		100
Jan 31	Depreciation Expense	315
	Accumulated Depreciation : Vehicle ( 3,600 / 12 )		300
	Accumulated Depreciation : Office Equipment ( 180 / 12 )		15
Feb 28	Unearned Service Revenue ( 15 hours x $ 40)	600
	Service Revenue		600
Feb 28	Rent Expense	300
	Prepaid Rent		300
Feb 28	Insurance Expense	100
	Prepaid Insurance		100
Feb 28	Depreciation Expense	315
	Accumulated Depreciation: Vehicle		300
	Accumulated Depreciation : Office Equipment		15
Mar 31	Unearned Service Revenue ( 35 hours x $ 40)	1,400
	Service Revenue		1,400
Mar 31	Rent Expense	300
	Prepaid Rent		300
Mar 31	Insurance Expense	100
	Prepaid Insurance		100
Mar 31	Depreciation Expense	315
	Accumulated Depreciation : Vehicle		300
	Accumulated Depreciation : Office Equipment		15

4.

Adjusted Trial Balance March 31, 2019
Account Titles	Debit	Credit
	$	$
Cash	31,100
Office Supplies	1,000
Prepaid Insurance	900
Prepaid Rent	900
Vehicle	18,000
Accumulated Depreciation : Vehicle		900
Office Equipment	900
Accumulated Depreciation : Office Equipment		45
Accounts Payable		0
Unearned Service Revenue		1,200
Common Stock		50,000
Service Revenue		2,800
Rent Expense	900
Insurance Expense	300
Depreciation Expense	945
Totals	$ 54,945	$ 54,945