Lillian Rose opened a facility to provide day care for children. The following transactions occurred during the month of July 2019, the first month of business.
a. Lillian Rose invested $10,000 of her personal funds in a business, to be known as LilyRose Day
Care.
b. To provide additional funds for her business, she borrowed $20,000 from a bank. The loan must be
repaid at the end of year with interest at 8% per annum.
c. She rented a large house for one year. She paid rent of $5,000 in advance for the months of Julyand August.
d. She bought furniture at a cost of $6,000, receiving an invoice that had to be paid in 10 days. Sheexpected the equipment to last five years.
e. She paid $1,000 cash for food, toys and other operating supplies. (Because these
items are likely to be consumed in a few months, treat them as Operating Expenses.)
f. She paid the invoice for $6,000, received in transaction d.
g. She paid her helper at the rate of $400 a week, a total of $1,600 for the month.
h. She billed her clients $11,500 for day care services provided during the month.
i. She received checks totaling $11,000 against the bills sent out in transaction h.
j. She received a bill for utilities in the amount of $300.
Lillian wanted to prepare financial statements at the end of the month, so she made adjusting journal entries for the following items.
k. To record interest for one month on the amount borrowed from the bank in
transaction b.
l. To recognize the expiration of rent for the month of July (transaction c).
m. To recognize one month's depreciation on the equipment purchased in transaction d.
n. To recognize salary of $240 owed to her helper for the last three days of July.
Required:
A. Analyze the above transactions on a worksheet. The worksheet should show columns for
individual accounts classified as assets, liabilities, and equity.
B. Prepare journal entries to record the above transactions.

A Business Borrows $100,000 from a Bank on July 1

Multiple Choice

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