Eagle Security Service (PVT) Ltd. provides security solutions to various offices

Question

Eagle Security Service (PVT) Ltd. provides security solutions to various offices and shopping centers in the city. The books of accounts of the company are closed at the end of the calendar year. The following transactions occurred during the financial year 2009. On August 01, the company received Rs. 40,000 as advance payment from ABC Shopping Mall for security services that are to be performed for the period of four months starting from August 01 The accountant of the Eagle Security Service recorded the same amount by crediting the "services revenue account" on August 01, 2009. XYZ Company limited filed a lawsuit against die Eagle Security Service (PVT) Ltd. For claims of worth Rs. 30,000 but the suit has not yet been settled. On December 01, 2009, the company received Rs. 36,000 from the "Stylish Jewelers" located on the Main Boulevard for security services to be performed for die period of six months starting from December 01,2009. The entire amount was credited to the "unearned services revenue account" The company uses a rental building as head office for which rent is accrued of Rs. 80,000 for twelve months up to the end of December but the company usually records rent expense when the rent is actually paid Rent is normally paid in the first month of next year Entries are recorded for salaries expenses when employees are actually paid. Salaries are still to be paid amounting to Rs. 50,000 of one month till December 31,2009. On December 01, 2009 the company borrowed Rs. 300,000 from National Bank of Pakistan by issuing a 15% note payable due after six months. No entry is passed by the accountant yet On October 31,2009 the company made a payment of worth Rs. 18,000 for insurance policy of one year starting from die beginning of November 01 2009. The whole amount was recorded as "prepaid insurance account". No depreciation expense for year has been recognized of the fixed asset having the cost of Rs. 80,000 and the book value of Rs. 51,200 Previously assets were depreciated (written down value method) @20% per annum. For each above transaction pass die adjusting entry, if required, at December 31,2009. (Simply state "NO' with one line reason where adjusting entry is not required). Explain the effect after adjustments on the "Expenses. Assets and Owners' equity" of the company Use the below format where "I" = increase, "D" = Decrease and "NE" = No Effect

Explanation / Answer

1 Service Revenue 40000 Unearned Service Revenue 40000 2 No Entry required. Just a note is required in the Balance Sheet. 3 Unearned Service Revenue 6000 Service Revenue 6000 4 Rent Expense 80000 Rent Expense Outstanding 80000 5 Salary Expense 50000 Salary Expense Outstanding 50000 6 Interest Expense 3750 Interest Expense Outstanding 3750 7 Insurance Expense 1500 Prepaid Insurance 1500 8 Depreciation Expense 28800 Accumulated Depreciation 28800
Sr.No Expenses Asset Owners' Equity 1 NE NE D 2 NE NE NE 3 NE NE I 4 I NE D 5 I NE D 6 I NE D 7 I D D 8 I D D
Sr.No Expenses Asset Owners' Equity 1 NE NE D 2 NE NE NE 3 NE NE I 4 I NE D 5 I NE D 6 I NE D 7 I D D 8 I D D
1 Service Revenue 40000 Unearned Service Revenue 40000 2 No Entry required. Just a note is required in the Balance Sheet. 3 Unearned Service Revenue 6000 Service Revenue 6000 4 Rent Expense 80000 Rent Expense Outstanding 80000 5 Salary Expense 50000 Salary Expense Outstanding 50000 6 Interest Expense 3750 Interest Expense Outstanding 3750 7 Insurance Expense 1500 Prepaid Insurance 1500 8 Depreciation Expense 28800 Accumulated Depreciation 28800

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