ch03 - (a) General Journal J1 DATE Account Titles and...

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Demonstration Problem Terry Thomas opens the Green Thumb Lawn Care Company on April 1. At April 30, the trial balance shows the following balances for selected accounts. Prepaid Insurance $3,600 Equipment 28,000 Notes Payable 20,000 Unearned Revenue 4,200 Service Revenue 1,800 Analysis reveals the following additional data. 1. Prepaid insurance is the cost of a 2-year insurance policy, effective April 1. 2. Depreciation on the equipment is $500 per month. 3. The note payable is dated April 1. It is a 6-month, 12% note. 4. Seven customers paid for the company's 6 months lawn service package of $600 beginning in April. These customers were serviced in April. 5. Lawn services provided other customers but not recorded at April 30 totaled $1,500. Instructions Prepare the adjusting entries for the month of April. Show computations. SOLUTION TO DEMONSTRATION PROBLEM
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Unformatted text preview: (a) General Journal J1 DATE Account Titles and Explanation Ref. Debit Credit Apr. 30 Insurance Expense 150 Prepaid Insurance 150 (To record insurance expired: $3,600/24=$150 per month) Depreciation Expense 500 Accumulated Depreciation - Equipment 500 (To record monthly depreciation) Interest Expense 200 Interest Payable 200 (To record interest on notes payable: $20,000*12%*1/12=$200) Unearned Revenue 700 Service Revenue 700 (To record service revenue: $600/6=$100; $100 per month times 7 = $700) Accounts Receivable 1,500 Service Revenue 1,500 (To record revenue for services provided) Questions : 1. What is the remaining balance in the Prepaid Insurance account and is the balance a debit or credit ? 2. Is the depreciation expense or the accumulated depreciation account a temporary account ? Why ?...
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