Easy Pages Pack’n Mail completed the following transactions during 2014:
Nov.1 Paid $ 6,000 store rent covering the three-month period ending January 31, 2015.
Nov.1 Paid $ 6,000 insurance covering the four-month period ending February 28, 2015.
Dec.1 Collected $ 5,200 cash in advance from customers. The service revenue will be earned $ 1,300 monthly over the four- month period ending March 31, 2015.
Dec.1 Collected $ 4,500 cash in advance from customers. The service revenue will be earned $ 1,500 monthly over the three- month period ending February 28, 2015.
1. Journalize the transactions assuming that Easy Pages debits an asset account for prepaid expenses and credits a liability account for unearned revenues.
2. Journalize the related adjusting entries at December 31, 2014.
3. Post the journal and adjusting entries to the T-accounts, and show their balances at December 31, 2014. (Ignore the Cash account.)
4. Repeat Requirements 1–3. This time debit an expense account for prepaid expenses and credit a revenue account for unearned revenues.
5. Compare the account balances in Requirements 3 and 4. They should be equal.