Question

Journalizing transactions, posting journal entries to four-column accounts, and preparing a trial balance

Terrence Murphy opened a law office on January 1, 2018. During the first month of operations, the business completed the following transactions:

Jan. 1 Murphy contributed \(78,000 cash to the business, Terrence Murphy, Attorney. The business issued common stock to Murphy.

3 Purchased office supplies, \)600, and furniture, \(1,700, on account.

4 Performed legal services for a client and received \)1,000 cash.

7 Purchased a building with a market value of \(130,000, and land with a market value of \)25,000. The business paid \(25,000 cash and signed a note payable to the bank for the remaining amount.

11 Prepared legal documents for a client on account, \)400.

15 Paid assistant’s semimonthly salary, \(1,120.

16 Paid for the office supplies purchased on January 3 on account.

18 Received \)2,700 cash for helping a client sell real estate.

19 Defended a client in court and billed the client for \(1,800.

25 Received a bill for utilities, \)600. The bill will be paid next month.

29 Received cash on account, \(1,500.

30 Paid \)1,200 cash for a 12-month insurance policy starting on February 1.

30 Paid assistant’s semimonthly salary, \(1,120.

31 Paid monthly rent expense, \)1,800.

31 Paid cash dividends of $2,200.

Requirements

2. Open the following four-column accounts including account numbers: Cash, 101; Accounts Receivable, 111; Office Supplies, 121; Prepaid Insurance, 131; Land, 141; Building, 151; Furniture, 161; Accounts Payable, 201; Utilities Payable, 211; Notes Payable, 221; Common Stock, 301; Dividends, 311; Service Revenue, 411; Salaries Expense, 511; Rent Expense, 521; and Utilities Expense, 531.

Short answer

The prepaid expense is the amount paid but not yet incurred and the required four-column accounts are prepaid in step 2.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of Prepaid Expense

The Prepaid Expense is defined as the amount of money paid in advance for the expense which has not been incurred.

Preparing the four-column accounts

Cash Account Number – 101
					Balance
Date	Item	PR	Debit	Credit	Debit	Credit
Jan
1	Common Stock		$78,000		$78,000
4	Service Revenue		$1,000		$79,000
7	Land			$25,000	$54,000
15	Salaries Expense			$1,120	$52,880
16	Accounts Payable			$600	$52,280
18	Service Revenue		$2,700		$54,980
29	Accounts Receivables		$1,500		$56,480
30	Prepaid Insurance			$1,200	$55,280
30	Salary Expense			$1,120	$54,160
31	Rent Expense			$1,800	$52,360
31	Dividends			$2,200	$50,160

Accounts Receivables Account Number – 111
					Balance
Date	Item	PR	Debit	Credit	Debit	Credit
Jan 11	Service Revenue		$400		$400
19	Service Revenue		$1,800		$2,200
29	Cash			$1,500	$700

Office Supplies Account Number – 121
					Balance
Date	Item	PR	Debit	Credit	Debit	Credit
Jan 3	Accounts Payable		$600		$600

Prepaid Insurance Account Number – 131
					Balance
Date	Item	PR	Debit	Credit	Debit	Credit
Jan 30	Cash		$1,200		$1,200

Land Account Number – 141
					Balance
Date	Item	PR	Debit	Credit	Debit	Credit
Jan 7	Cash		$25,000		$25,000

Building Account Number – 151
					Balance
Date	Item	PR	Debit	Credit	Debit	Credit
Jan 7	Notes Payable		$130,000		$130,000

Furniture Account Number – 161
					Balance
Date	Item	PR	Debit	Credit	Debit	Credit
Jan 3	Accounts Payable		$1,700		$1,700

Accounts Payable Account Number – 201
					Balance
Date	Item	PR	Debit	Credit	Debit	Credit
Jan 3	Office Supplies			$600
	Furniture			$1,700		$2,300
Jan 16	Cash			$600		$2,900

Utilities Payable Account Number – 211
					Balance
Date	Item	PR	Debit	Credit	Debit	Credit
Jan 25	Utilities Expense			$600		$600

Notes Payable Account Number – 221
					Balance
Date	Item	PR	Debit	Credit	Debit	Credit
Jan 7	Building			$130,000		$130,000

Common Stock Account Number – 301
					Balance
Date	Item	PR	Debit	Credit	Debit	Credit
Jan 1	Cash			$78,000		$78,000

Dividends Account Number – 311
					Balance
Date	Item	PR	Debit	Credit	Debit	Credit
Jan 31	Cash		$2,200		$2,200

Service Revenue Account Number – 411
					Balance
Date	Item	PR	Debit	Credit	Debit	Credit
Jan
4	Cash			$1,000		$1,000
Jan 11	Accounts Receivables			$400		$1,400
18	Cash			$2,700		$4,100
19	Accounts Receivables			$1,800		$5,900

Salaries Expense Account Number - 511
					Balance
Date	Item	PR	Debit	Credit	Debit	Credit
Jan 15	Cash		$1,120		$1,120
Jan 30	Cash		$1,120		$2,240

Rent Expense Account Number - 521
					Balance
Date	Item	PR	Debit	Credit	Debit	Credit
Jan 31	Cash		$1,800		$1,800

Utilities Expense Account Number – 531
					Balance
Date	Item	PR	Debit	Credit	Debit	Credit
Jan 25	Utilities Payable		$600		$600