On July 12019 Tim Stein established his own accounting pract

On July 1,2019, Tim Stein established his own accounting practice. Selected transactions for the first few days of July follow. DAr TRANSACTIONS July 1 Signed a lease for an office and issued Check 101 for $13,500 to pay the rent in advance for six months 1 Borrowed money from Second National Bank by issuing a four-month, 6 percent note for $28,800: received $28,224 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 $6,200 per month; received the entire fee of $74,400 in advance 1 Purchased office equipment for $14,000 from Office Outfitters; issued a two-month, 9 percent note in payment. The equipment is estimated to have a useful life of four years and a $1,520 salvage value The equipment will be depreciated using the straight-line method 1 Purchased a one-year insurance policy and issued Check 102 for $1,644 to pay the entire premium. 3 Purchased office furniture for $21,040 from Furniture Warehouse: issued Check 103 for $15,440 and agreed to pay the balance in 60 days. The equipment has an estimated useful life of six years and a $1,600 salvage value. The office furniture will be depreciated using the straight-line method. 5 Purchased office supplies for $1,850 with Check 104. Assune $820 of supplies are on hand July 31, 2019. Required 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 Analyze: What balance should be reflected in Unearned Accounting Fees at July 31, 2019

Solution

No Date General Journal Debit $ Credit $ 1 Jul 01, 2019 Prepaid rent 13,500 Cash 13,500 2 1-Jul-19 Cash 28,224 Prepaid interest 576 Notes payable 28,800 3 Jul 01, 2019 Cash 74,400 Unearned accounting fees 74,400 4 Jul 01, 2019 Office equipment 14,000 Notes payable 14,000 5 Jul 01, 2019 Prepaid insurance 1,644 Cash 1,644 6 Jul 03, 2019 Office furniture 21,040 Cash 15,440 Accounts payable 5,600 7 Jul 05, 2019 Supplies 1,850 Cash 1,850 Adjusting Entries No Date General Journal Debit Credit 1 Jul 31, 2019 Rent expense (13500 x 1/6) 2,250 Prepaid rent 2,250 2 Jul 31, 2019 Interest expense(576/4) 144 Prepaid interest 144 3 Jul 31, 2019 Unearned accounting fees 6,200 Service Revenue 6,200 4 Jul 31, 2019 Interest expense(14000 x 9% x 1/12) 105 Interest Payable 105 5 Jul 31, 2019 Depreciation expense—Office equipment(14000-1520)/48 260 Accumulated depreciation—Office equipment 260 6 Jul 31, 2019 Insurance expense(1644/12) 137 Prepaid insurance 137 7 Jul 31, 2019 Depreciation expense—Office furniture(21040-1600)/72 270 Accumulated depreciation—Office furniture 270 8 Jul 31, 2019 Supplies expense(1850-820) 1,030 Supplies 1,030 unearned accounting fees = (74400-6200) = $68,200