Reference no: EM133077326
Question - Company X has decided on a Dec 31 fiscal year-end and uses the following accounts in its general ledger:
Current assets: cash, acc receivable, allowance for doubtful accounts (contra), prepaid rent Non current assets: equipment, accumulated depreciation (contra)
Current liabilities: Accounts payable, interest payable, deferred revenue, notes payable(current), Non current liabilities: notes payable(long term)
Equity: common shares, retained earnings
Revenue and expense accounts: service rev, service discounts (contra), bad debt exp, depreciation exp, interest exp, rent exp, wage exp.
During the year ended dec 31, 2021, the following transactions occurred:
July 1 - Borrowed 30k from the bank at an interest rate of 4% for 3 years. Interest only payments required every 12 months.
July 2 - Found office space to rent. Agreed to a one year lease starting July 1, 2020, at a cost of 2k a month. Required to pay first 6 months upfront.
July 3 - Purchased equipment for 10k. The equipment is to be depreciated on a straight-line basis over 3 years and is expected to have a residual value of 1k. Paid 4K in cash and signed a note payable for the remaining amount. The note carries interest at a rate of 10%. The note and the interest are payable on October 31, 2021.
July 15 - received 9k in cash for bookkeeping services to be provided equally each month for the period august 1, 2021 to July 1, 2022
August 15 - Issued an invoice for 5k for consulting services provided during august to a client facing bankruptcy. Terms are 2/15 net 30. Company X assumes that 5% of any outstanding balances at the end of the year will be uncollectable.
August 28 - received half the amount owing from august 15 invoice
October 31 - pay principal and interest on note payable
December 3 - received a notice saying that the client from august 15 transaction had declared bankruptcy and will not be making any further payments. Wrote off the oustanding amount owed by client.
December 10 - Issued an invoice for 10k for consulting services provided during December to a client expanding operations. Terms are 2/15, net 30. Company X assumes that 5% of any oustanding balances at the end of the year will be uncollectable.
Required - Prepare all journal entries necessary to record the transactions, and any necessary December 31 year end adjusting entries. You don't need to provide closing entries. Use only the accounts provided. Ignore income and sales taxes. Clearly label whether debit or credit.