Question

The BJI Care Company began operations on OCtober1. At October 30, the trial balance shows the following balances for selected accounts.

DR CR

Prepaid Insurance 3,600

Equipment 28,000

Notes Payable 20,000

Unearned Service Revenue 4,200

Cash 5,000

Owner’s Equity 18,400

Drawing 1,500

Accounts receivable 6,300

Service Revenue 1,800

Total 44,400 44,400

Analysis reveals the following additional data.

1. Prepaid insurance is the cost of one-year insurance policy, effective October1.

2. Depreciation on the equipment is $500 per month.

3. The note payable is dated April 1. It is a one-year, 12% note, and the interest incurred.

4. Nine customers paid for the company’s 6-month the care service package of $400 for each one (customer) beginning in October. The company performed services for these customers in October as well.

5. Care services performed for other customers but not recorded at October 30 totaled $1,500 and the company didn't receive the fees.

Instructions:

1- Prepare the adjusting entries for the month of October. Show computations.

2- Prepare worksheet.

Answer 1

Answer is as follows:

1. Adjusting Entries:

1. Insurance expense A/C Dr $300

To Prepaid Insurance A/C $300 ($3600/12months)

2. Depreciation expense A/C Dr $500

To Accumulated Depreciation - Equipment A/C $500

3. Interest expense A/C Dr $200

To Interest payable A/C $200 ($20000*12*1/12)

4. Unearned Service Revenue A/C Dr $600

To Service Revenue A/C $600 (9*$400)/6months

5. Accounts Receivable A/C Dr $1500

To Service Revenue A/C $1500

2. Worksheet : Adjusted Trial Balance

Particulars Debit Credit

Prepaid Insurance (3600-300) $3300

Equipment $28000

Notes Payable $20000

Unearned Service Revenue $3600 (4200-600)

Cash $5000

Owners' Equity $18400

Drawings $1500

Accounts Receivable (6300+1500) $7800

Service Revenue $3900 (1800+600+1500)

Insurance Expense $300

Depreciation Expense $500

Interest Expense $200

Accumulated depreciation - Equipment $500

Interest Payable $200

TOTAL $46600 $46600