On July 1, 2016, Sean McConnell established his own accounting practice. Selecte
ID: 2483992 • Letter: O
Question
On July 1, 2016, Sean McConnell established his own accounting practice. Selected transactions for the first few days of July follow.
Signed a lease for an office and issued Check 101 for $12,150 to pay the rent in advance for six months.
Borrowed money from First National Bank by issuing a four-month, 6 percent note for $40,800; received $39,984 because the bank deducted the interest in advance.
Signed an agreement with Young Corp. to provide accounting and tax services for one year at $5,300 per month; received the entire fee of $63,600 in advance.
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.
Purchased a one-year insurance policy and issued Check 102 for $1,692 to pay the entire premium.
Purchased office furniture for $15,100 from Office 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 $1,600 salvage value. The office furniture will be depreciated using the straight-line method.
Purchased office supplies for $1,930 with Check 104. Assume $860 of supplies are on hand July 31, 2016.
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 2016.
DATE TRANSACTIONS July 1Signed a lease for an office and issued Check 101 for $12,150 to pay the rent in advance for six months.
1Borrowed money from First National Bank by issuing a four-month, 6 percent note for $40,800; received $39,984 because the bank deducted the interest in advance.
1Signed an agreement with Young Corp. to provide accounting and tax services for one year at $5,300 per month; received the entire fee of $63,600 in advance.
1Purchased 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.
1Purchased a one-year insurance policy and issued Check 102 for $1,692 to pay the entire premium.
3Purchased office furniture for $15,100 from Office 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 $1,600 salvage value. The office furniture will be depreciated using the straight-line method.
5Purchased office supplies for $1,930 with Check 104. Assume $860 of supplies are on hand July 31, 2016.
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 2016.
Explanation / Answer
Particulars DEBIT CREDIT Prepaid Rent 12150 bank 12150 (rent paid in advance) bank 39984 Interest deducted in advance 816 6% note 40800 (loan proceeds after deduction of interest) cash 63600 Unearned income (service fee advance) 63600 (service revenue received in advance) Office Equipment 26400 6% note payable 26400 (equipment purchased on loan) Insurance premium 1692 bank 1692 (insurance premium paid) Office furniture 15100 Bank 10400 Office warehouse (supplier) 4700 (furniture purchased partly on cash) Office supplies 1930 bank 1930 (office supplies purchased) P&L 1070 Office supplies 1070 (office supplies consumed) Depreciation 2700 Accumulated depreciation 2700 (depreciation on furniture) Depreciation 4080 Accumulated depreciation 4080 (depreciation on equipment) P&L 6780 Depreciation 6780 (depreciation debitd to P&L) Asset Original Cost Years Salvage Value Depreciation Equipment 26400 6 1920 4080 Furniture 15100 5 1600 2700
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