On July 1, 2019, Tim Stein established his own accounting practice. Selected tra

Question

On July 1, 2019, Tim Stein established his own accounting practice. Selected transactions for the first few days of July follow. DATE TRANSACTIONS July1 Signed a lease for an office and issued Check 1e1 for $12,888 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 $42,48e; received $48,784 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 $5,280 per month; received the entire fee of $62,488 in advance 1 Purchased office equipment for $23,880 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 $1,48 salvage l The equipment will be depreciated using the straight-line method 1 Purchased a one-year insurance policy and issued Check 182 for $1,784 to pay the entire premium 3 Purchased office furniture for $11,56e from Furniture Warehouse issued Check 183 for $8,460 and agreed to pay the balance in 68 days. The equipment has an estimated useful life of four years and a $1,8 salvage value. The office furniture will be depreciated using the straight-line method 5 Purchased office supplies for $1,95e with Check 184. Assume $87e of supplies are on hand July 31, 2819 Requlred 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 0 Analyze: What balance should be reflected in Unearned Accounting Fees at July 31, 2019?

Explanation / Answer

1) Record the payment of rent 1-Jul Prepaid Rent 12000 To Cash 12000 2) Record the borrowing 1-Jul Prepaid interest 1696 Cash 40704 To 12%, four month note 42400 3) Record the fees received in advance Cash 62400 To Advance receive for service 62400 4) Record the purchase of Equipment Office Equipment 23000 To 12%, two month note 23000 5) Record the payment for insurance Prepaid Insurance 1704 To Cash 1704 6) Record the purchase of furniture Office Furniture 11560 To Cash 8460 To Furniture warehouse 3100 7) Record the purchase of supplies Office Supplies purchased 1950 To Cash 1950 Adjustment Entry 1) Rent paid 2000 To prepaid rent 2000 2) Interest Expense 424 To prepaid interest 424 (1696/4) 3) Advance received for service 5200 To Sale 5200 4) Record the adjustment for interest on the note payable Interest Expense 230 To Interest payable 230 (23000*12%)/12 5) Record the adjustment for depreciation on the equipment Depreciation 4320 To Office Equipment 4320 (23000-1400)/5 6) Record the adjustment for insurance expired Insurance Expense 1704 To prepaid insurance 1704 7) Record the adjustment for depreciation on the furniture 2640 (11560-1000)/4 2640 8) Record the adjustment for Supplies Supplies Expense 1080 To office supplies 1080 The unearned accounting fees at July 31, 2019 would be 57200 5200*11

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