In its first year of operations, Lien Company entered into the following transac

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

Explanation / Answer

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

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