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Summary of Study Objectives

119

The Green Thumb Lawn Care Inc. began operating on April 1in China. At April 30, the trial
balance shows the following balances for selected accounts. (Amounts are in Chinese yuan.)
Y 36,000
Prepaid Insurance
Equipment
280,000
Notes Payable
200,000
Unearned Revenue
42,000
Service Revenue
18,000
Analysis reveals the following additional data.

1. Prepaid insurance is the cost of a 2-year insurance policy, effective April 1.

2. Depreciation on the equipment is Y5,000 per month.
3. The note payable is dated April 1. It is a 6-month, 12% note.
4. Seven customers paid for the company's 6 months' lawn service package of Y6,000
beginning in April. The company performed services for these customers in April.
5. Lawn services provided to other customers but not recorded at April 30 totaled Y15,000.
Instructions
Prepare the adjusting entries for the month of April. Show computations.
Solution to Comprehensive
J1

GENERAL JOURNAL

Credit
Adjusting Entries
Insurance Expense
Prepaid Insurance
(To record insurance expired:
Y36,000 + 24 = Y1,500 per month)
Depreciation Expense
Accumulated Depreciation-Equipment
(To record monthly depreciation)

1,500

Action Plan
Note that adjustments are being
made for one month.
Make corr~putationscarefully.
Select account titles carefully.
Make sure debits are made first
and credits are indented.
Check that debits equal credits
for each entry.

Interest Payable
(To record interest on notes payable:
Y200,000 x 12% x 1/12 = Y2,OOO)
Service Revenue
(To record service revenue: Y6,000 + 6 = Y1,000;
Y1,000 per month X 7 = Y7,OOO)
Service Revenue
(To record revenue for services provided)

SUMMARY OF STUDY OBJECTIVES

-PLUS

1 Explain the time period assumption. The time period

2 Explain the accrual basis of accounting. Accrual-basis

assumption assumes that the economic life of a business is

divided into artificial time periods.

accounting means that companies record events that

change a company's financial statements in the periods in