The following transaction pertain to a recently started (in 20X3) Free
Life Company that performs security services:
1) Jan. 15
Began operations when the owners contributed $20,000;
2) Jan. 31
Paid $2,400 cash for an insurance policy; the policy contract had a 2year term;
3) Feb. 28
Received $3,600 cash in advance for services to be performed during
a year;
4) March 14 Purchased supplies of $3,000 on account;
5) March 25 Received $5,000 cash for services provided;
6) April 16
Incurred $2,500 of utility expense on account;
7) May 31
Invested $4,000 in a certificate of deposit that carried a 1-year term
and 7% annual interest;
8) June 17
Billed clients $3,500 for services performed;
9) June 30
Bought a car for $3,000 cash; expected useful life of the car is 2 years
with no salvage value;
10) July 28
Collected $3,000 cash from accounts receivable;
11) Aug. 23
Paid $3,500 cash for accounts payable (see Events 4 & 6);
12) Sep. 5
Distributed $1,500 to the owners;
Adjusting entries
a1) Dec. 31
Recorded the insurance expense for the accounting period (see Event
2);
a2) Dec. 31
Adjusted records to recognize revenue on services provided from
March to December (see Event 3);
a3) Dec. 31
Recorded the supplies expense; at the end of the accounting period
$500 of supplies remained on hand (see Event 4);
a4) Dec. 31
Recorded the accrual interest on the CD (see Event 7);
a5) Dec. 31
Recorded depreciation expense on the car used during the year (see
Event 9);
a6) Dec. 31
Accrued $1,000 of salaries payable.
Required: 1) Record the transaction in the general journal;
2) Post the transaction to the appropriate T-accounts and calculate the accounts’
balances;
3) Prepare the balance sheet, income statement, statement of changes in equity, and
the statement of cash flows;
4) Prepare the closing entries at December 31 in the general journal.