Question

Phoebe’s Plumbing, a firm that provides plumbing services, has just completed a full year of operations on 30 June 2020. An analysis of the firm’s records reveals the following:

(i)     On 1 January, the firm purchased a new machine for $75,000. Depreciation expense for the six months ended on 30 June 2020 is $7,500.

(ii)    The supplies account had a $135 debit balance on 1 July. Supplies of $545 were purchased during the year and $120 of supplies are on hand as at 30 June.

(iii)    A one year insurance policy was purchased on 1 May. It cost $3,000 and was recorded in the prepaid insurance account.

(iv)   Phoebe’s Plumbing has a number of annual maintenance contracts with its customers. These contracts are for the 12 months ending 31 December. This year $60,000 was received in advance for these contracts. The firm recorded these amounts in unearned revenue.

(v) The firm has 2 employees who each earn $200 a day. They both worked the last 4 days in June for which they have not been paid.

(vi) The firm has a bank loan of $100,000. The interest owing on this loan at 30 June is $2,500.

(vii) Invoices representing $2,000 of services performed during the month have not been recorded as at 30 June.

Required:

Prepare the adjusting journal entries for the year ended 30 June 2020. Ignore GST. (Explanations not required)

Answer 1

Date	Account title	Debit	credit
i	Depreciation expense	7500
	Accumulated depreciation		7500
ii	supplies expense	560
	Supplies		560
	[Being supplies used :135+545-120]
iii	Insurance expense	500
	Prepaid insurance		500
	[Being insurance expired for 2months (1May -30June)3000*2/12 =500]
iv	unearned revenue	30000
	revenue		30000
	[Being revenue earned for 6 months (1Jan -30June ) =60000*6/12=30000]
v	salaries expense	1600
	salaries payable		1600
	[Being salaries accrued : 2*200 4 =1600]
vi	Interest expense	2500
	Interest payable		2500
vii	Accounts receivable	2000
	service revenue		2000