Question 2

Melissa Smith is running her own propriety business called MS Accounting. MS Accounting provides bookkeeping services to small and mid-sized companies. The company prepares financial statements on a monthly basis.

The journal entries for the month of June have already been entered in the journal and posted to the ledger. The trial balance, before adjustments, is presented below.

MS Accounting

Trial Balance

June 30, 2020

Acct. No. 101 105 110 120 200 210 215 300 310 400 500 535

Account Cash Accounts Receivable Prepaid Insurance Equipment Accounts Payable Unearned Revenue Bank Loan Smith, Capital Smith, Drawings Service Revenue Advertising Expense Professional Fees Expense

Debit $2,775 2,300 600 3,000 500 225 450 $9,850

Credit $1,375 450 1,525 4,700 1,800 _____ $9,850

At the end of June 2020, MG Accounting had to make the following adjustments.

June 30 The prepaid insurance represents a one-year policy that started in June. One month has now been used.

June 30 When examining the balance of unearned revenue, Melissa determined that $225 has now been earned.

June 30 Interest has accrued on the balance of the bank loan for the month. The loan interest rate is 10%. (Round to the nearest whole number).

June 30 Depreciation on the equipment for the month must be recorded. The equipment is depreciated using the straight-line method. The equipment is expected to last five years and will have no residual value.

June 30 Melissa started an audit for a new client. The contract is for 20 days of work starting June 21. At the end of June, the client will pay MS Accounting $900. Accrue the revenue earned for June.

Required:

Prepare adjusting entries in preparation for producing financial statements using the journal.