BM0003 Principles of Accounting COMPLETING ACCOUNTING CYCLE On 2 January 2011, Anthony decided to set up his own legal practice,

to be known as Anthony Legal Services. Anthony invested $70,000 cash into the business and adopted the accrual basis for the preparation of its financial statements. The following trial balance was prepared as at 31 January 2011: Anthony Legal Services Trial balance as at 31 January 2011 $ Cash Office rent Office supplies Office equipment Bank loan (3-year loan) Unearned fees Capital, Anthony Drawings, Anthony Legal Fees Earned Salary expense Miscellaneous expense Prepaid insurance 5,000 1,100 4,000 $120,300 $120,300 2,000 22,790 43,270 4,200 730 60,000 20,000 7,510 70,000 $

Additional information: (i) The annual fire insurance premium amounted to $9,600. $4,000 was paid on 2 January 2011 and recorded in the books. (ii) (iii) Office supplies on hand as at 31 January amounted to $400. The bank loan taken up on 1 January was subject to an annual interest rate of 6% and interest has not been recorded nor paid.

(iv) Salaries earned by office staff but not yet recorded or paid amounted $2,200. (v) On 25 January, cash of $1,240 received from a customer for services rendered was debited to Cash and credited to Unearned fees. As at 31 January, a further sum of $2,350 of Unearned fees were earned.

(vi) Out of the Drawings amount of $2,000, $1,000 was paid to Anthony for entertainment of clients for the business. (vii) Anthony estimated that the office equipment will have a useful life of 10 years with zero residual value. Straight line method of depreciation is adopted. Required: a) Prepare the necessary correcting/adjusting journal entries based on the additional information provided. No narration is required. Prepare the Statement of Comprehensive Income for the month ended 31 January 2011. Prepare the Statement of Financial Position as at 31 January 2011.

b)

c)

KEY ANSWERS Anthony Legal Services Statement of Comprehensive Income for the month ended 31 January 2011 $ Legal Fees Earned Less : Operating Expenses Salary Expense Miscellaneous expense Office rent expense Insurance Expense Office supplies expense Depreciation Expense Entertainment expense Interest expense Net Profit Anthony Legal Services Statement of Financial Position as at 31 January 2011 Current Assets $ $ Cash Office supplies Prepaid Insurance Total Current Assets Fixed Assets Office Equipment Less: Accumulated Depreciation Net book Value Total Assets Current Liabilities Salaries Payable Unearned fees interest payable Total Current Liabilities Long term liabilities Bank loan (3 year loan) Total Liabilities Owners Equity Capital, Anthony Add : Net profit 11,150 Less Drawings Total Liabilities and Owners Equity $

11,150

106,370

106,370