Suli Mani opened a legal practice on January 1, 2014. During the first month of operations, the following transactions occurred.
1. Performed services for clients represented by insurance companies. At January 31, $6,000 of such services was earned but not yet billed to the insurance companies.
2. Membership fees for the year to the law society, which were incurred but not paid before January 31, totaled $720.
3. Purchased computer equipment on January I for $8,400, paying $2,000 in cash and signing a $6,400, one-year note payable. The equipment depreciation is S350 per month. Interest is S50 per month.
4. Purchased a one-year malpractice insurance policy on January I for $12,000. (Suli lvlani records prepayments in an appropriate asset account.)
5. Purchased $3,800 of office supplies in January. On January 31, determined that S500 of the office supplies had been used.
Instructions
(a) Prepare the adjusting entries on January 31. Account titles are Accumulated Depreciation- Equipment;
Depreciation Expense; Service Revenue; Accounts Receivable; Insurance Expense; Interest Expense; Interest Payable; Prepaid Insurance; Supplies; Supplies Expense; Operating Expenses; and Accounts Payable.
(b) Prepare the adjusting entries on January 31 assuming that the law firm first records prepayments through the related income statement accounts (in other words, it uses the alternate method).