Question

Question 1 Quake Company experienced the following transactions and events in July 2020. (1) On 1 July 2020, the company signed a Letter of Intent with Benson Company to purchase a new equipment costing $30,000. No deposit was made. The equipment will be delivered in September 2020. (2) On 1 July 2020, the company purchased a 6-month insurance policy for $1,200. (3) On 1 July 2020, the company borrowed $50,000 by signing a 12-month 12% note payable. The entire amount, plus interest, is due one year later. (4) On 10 July 2020, the company purchased $5,000 supplies on credit. On 15 July 2020, Clarke Company files a lawsuit against Quake Company for $200,000. Quake's Company's attorney assesses that the lawsuit is without merit. (6) On 20 July 2020, the company paid $10,000 cash for advertisement published in the local newspaper. On 25 July 2020, the company decided to hire one more full-time staff at a monthly salary of $4,000. The new staff will join the company on 1 August 2020. (7) (8) On 28 July 2020, the company completed a $20,000 job that has not been billed. (9) On 31 July 2020, the company paid $12,500 to its employees for the month of July 2020. Analyse the above and prepare the necessary entries to describe them for the month of July 2020.

Quake Company experienced the following transactions and events in July 2020

Analyse the above and prepare the necessary entries to describe them for the month of July 2020.

Answer 1

No.	Date	Account Titles and Explanation	Debit	Credit
1		No Entry will be made as only Letter of Intent is signed, no purchase has been made and no payment has been made.
2	01-Jul	Prepaid Insurance A/c…Dr	$    1,200
		To Bank A/c		$    1,200
		(Being insurance purchased)
	31-Jul	Insurance Expense A/c…Dr	$        200
		To Prepaid Insurance A/c		$        200
		(Being insurance expense accrued for the month of July)
3	01-Jul	Bank A/c…Dr	$ 50,000
		To Note Payable A/c		$ 50,000
		(Being amount borrowed by signing notes payable)
	31-Jul	Interest Expense A/c…Dr	$        500		=50000*12%*1/12
		To Interest Payable A/c		$        500
		(Being interest accrued on notes payable for month of July)
4	10-Jul	Supplies A/c…Dr	$    5,000
		To Accounts Payable (or Supplies Payable) A/c		$    5,000
		(Being interest accrued on notes payable for month of July)
5		No Entry needed as lawsuit is withthout any merits i.e. it is bound to fail. So there us no need to make provision.
6	20-Jul	Advertisement Expense A/c…Dr	$ 10,000
		To Bank A/c		$ 10,000
		(Being amount paid for advertisement published)
7		No Entry needed for month of July as new staff will join on Aug 1. So no expense will be recorded for July
8	28-Jul	Accounts Receivable (or Accrued Revenue) A/c …Dr	$ 20,000
		To Service revenue A/c		$ 20,000
		(Being revenue accrued for service completed but not billed)
9	31-Jul	Salaries and Wages Expense A/c…Dr	$ 12,500
		To Bank A/c		$ 12,500
		(Being amount paid for Salary for the month of July)