Question

5) On January 2, 20X2, $20,000 was borrowed and recorded as a long-term note payable at an annual rate of 6%. The principal will be paid on January 2, 20X4. Interest will be paid monthly on the first of each month beginning February 1, 20X2 6) Recognized as client service revenue for client services performed during January $17,000 that had previously been recorded upon receipt in advance as unearned client service revenue. 7) A count showed $5,000 worth of office supplies on hand on January 31, 20X2 8) Income tax expense is accrued for January 20X2 based on 40 % of net income before taxes for January 20X2, not paid until a later month in 20X2. (Be sure to consider the effect of adjusting entries just made (1 through 7) on revenue and expense balances in determining net income before taxes. You may wish to complete part "e" of the problem below through adjusting entry # 7 first in order to establish adjusted revenue and expense balances before calculation of income tax at 40%.)

Prepare monthly adjusting journal entries for January 20X2 for the following items.

Answer 1

Amounts in $ Particulars Debit Credit Insurance expense (3200/4) 1) 800 800 Prepaid insurance 2) 5,000 Rent expense (30000/6) 5,000 Prepaid rent Depreciation expense equipment [(100000-4000)/8/12] Accumulated depreciation:equipment 3) 1,000 1,000 Interest expense 4) 400 Accrued interest (80000 6% / 12) 400 Interest expense (20000 6% / 12) 5) 100 Accrued interest 100 Unearned client service revenue 6) 17,000 Client service revenue 17,000 Office supplies (5000-4000) 7) 1,000 Cash 1,000

Income tax expense (17000-800-5000-1000-400-100) 40 % Income tax payable 8) 3,880 3,880