Chapter 12, Problem 2PA

1.

To determine

Pass the journal entries as on July 1.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit: A debit, is an accounting term that refers to the left side of an account. The term debit is be denoted by (Dr). The recording amount on the left side of the account is known as debiting.

Credit: A credit, is an accounting term that refers to the right side of an account. The term credit is denoted as (Cr). The recording amount on the right side of the account is known as crediting.

Rules of Debit and Credit: Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

• Debit, all the increase in the assets, the expenses and the dividends, all the decrease in liabilities, revenues and the stockholders’ equities.
• Credit, all the increase in the liabilities, the revenues, and the stockholders’ equities, and all decreases in the assets, and the expenses.

Pass the journal entries for the given transactions:

	General Journal			Page - 1
Date	Description	Post Ref.	Debit	Credit
2019
July 1	Prepaid Rent		$14,400
	Cash			$14,400
	(To record the rent paid in advance with check 101)
July 1	Cash		$32,928
	Prepaid Interest		$672
	Notes Payable			$33,600
	(To record the interest paid in advance)

Table (1)

	General Journal			Page - 1
Date	Description	Post Ref.	Debit	Credit
2019
July 1	Cash		$81,600
	Unearned Accounting Fee			$81,600
	(To record the fees received in advance)
July 1	Office Equipment		$20,400
	Notes Payable			$20,400
	(To record equipment purchased on account)
July 1	Prepaid Insurance		$1,716
	Cash			$1,716
	(To record insurance paid in advance using the check 102)
July 3	Office Furniture		$23,200
	Cash			$13,400
	Accounts payable			$9,800
	(To record furniture purchased on account after making a part payment using the check 103)
July 5	Supplies		$1,970
	Cash			$1,970
	(To record the purchase of supplies using the check 104)

Table (2)

2.

To determine

Pass the adjusting entries as on July 31, and compute the balance of the Unearned Accounting Fee Account on July 31, 2019.

Explanation of Solution

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

Pass the adjusting entries for the given transactions:

	General Journal			Page - 2
Date	Description	Post Ref.	Debit	Credit
2019
July 31	Rent expense		$2,400
	Prepaid Rent			$2,400
	(To record the prepaid rent)
July 31	Interest expense		$168
	Prepaid Interest			$168
	(To record the prepaid interest)
July 31	Unearned Accounting Fees		$6,800
	Accounting Fees			$6,800
	(To record the Accounting fees earned)
July 31	Interest expense		$153
	Interest Payable			$153
	(To record the interest payable)
July 31	Depreciation Expense - Office Equipment		$380
	Accumulated Depreciation - Office Equipment			$380
	(To record the depreciation on equipment)
July 31	Insurance expense		$143
	Prepaid Insurance			$143
	(To record the prepaid insurance)

Table (3)

	General Journal			Page - 2
Date	Description	Post Ref.	Debit	Credit
2019
July 31	Depreciation Expense - Office Furniture		$300
	Accumulated Depreciation - Office Furniture			$300
	(To record the depreciation on furniture)
July 31	Supplies Expense		$1,090
	Supplies			$1,090
	(To record the supplies)

Table (4)

The Unearned Accounting Fees Account shows a balance of $74,800 at the end of the month.

Working note:

Calculate the Unearned Accounting Fees:

$\begin{array}{c}\begin{array}{l}\text{Unearned }\\ \text{Accounting Fees}\end{array}\}\text{ =}\left(\begin{array}{l}\text{Cash received for }\\ \text{Accounting Fees}\end{array}\right)-\left(\begin{array}{l}\text{Accounting }\\ \text{Fees Earned}\end{array}\right)\\ =\text{ \$81,600 }-\text{\$6,800}\\ \text{= \$74,800}\end{array}$