12.2A (Algo) Recording adjustments for accrued and prepaid expense items and unearned income. LO 12-2, 12-3 On July 1, 20X1, Tim Stein established his own Financial Services. Selected transactions for the first few days of July follow DATE TRANSACTIONS 20x1 July 1 Signed a lease for an office and issued Check 101 for $13,950 to pay the rent in advance for six months. 1 Borrowed money from Second National Bank by issuing a four-month, 6 percent note for $31,200; received $30,576 because the bank deducted the interest in advance. 1 Signed an agreement with Carter Corp. to provide financial services for one year at $6,500 per month; received the entire fee of $78,000 in advance. The $78,000 was credited to Unearned Financial Service Fees. 1 Purchased office equipment for $17,200 from Office Outfitters; issued a two-month, 9 percent note in payment. The equipment is estimated to have a useful life of four years and a $1,840 salvage value. The equipment will be depreciated using the straight-line method. 1 Purchased a one-year insurance policy and issued Check 102 for $1,680 to pay the entire premium. 3. Purchased office furniture for $22,120 from Furniture Warehouse; issued Check 103 for $15,520 and agreed to pay the balance in 60 days. The equipment has an estimated useful life of six years and a $1,600 salvage value. The office furniture will be depreciated using the straight-line method. 5 Purchased office supplies for $1,910 with Check 104. Assume $850 of supplies are on hand July 31, 20x1. Required: 1. Record the transactions in the general journal. Assume that the firm initially records prepaid expenses as assets and unearned income as a liability for the year 20X1. 2. Record the adjusting journal entries that must be made on July 31, 20X1. Analyze: What balance should be reflected in Unearned Financial Service Fees at July 31, 20X1