LOVE ONLINE, INC.

DEBIT   CREDIT

CASH 32.800
ACCOUNTS RECEIVABLE 17.000
PREPAID RENT 4.000
UNEXPIRED INSURANCE 12.000
OFFICE SUPPLIES 2.500
COMPUTER EQUIPMENT 60.000

ACCUMULATED DEPRECIATION: COMPUTER EQUIPMENT 6.000
ACCOUNTS PAYABLE 10.000
NOTES PAYABLE 30.000
UNEARNED CLIENT FEES 15.000
CAPITAL STOCK 40.000
RETAINED EARNINGS 38.000
DIVIDENDS 3.500
CLIENT FEES EARNED 54.000
SALARIES EXPENSE 21.000
DEPRECIATION EXPENSE COMPUTER EQUIPMENT 5.500
INSURANCE EXPENSE 11.500
RENT EXPENSE 22.000
OFFICE SUPPLIES EXPENSE 3.700

TOTAL 193.000 193.000

The following information relates to the Company’s month-end adjustments:

1. Office supplies consumed during the month amounted to $900.
2. On December 1, the company paid $12.000 to renew their insurance policy for a period of 12 months. Adjust the monthly insurance expense.
3. The useful life of the computer equipment was estimated to be 10 years (120 months).
4. Fees recorded as Unearned Client Fees in the amount of $8,000 were earned during the current month of December.
5. On December 1, the company borrowed $30,000 by signing a 9-month, 9% note payable. The entire note, plus 9 months’ interest, is due August 31st, 2022. Record the interest expense for December.
6. On December 1, Love Online had moved into the new facilities and had paid $4.000 for 2 month's rent in advance.
7. Client fees already earned during December but not yet billed or recorded amounted to $25,000.

Instructions:

1. Prepare adjusting entries based on the information provided. (21 points = 3 points each)
2. Post all adjustments on the ledger accounts (T- accounts) (14 points)
3. Prepare closing entries (25 points)
4. Prepare an Income Statement (15 points)
5. Prepare a Statement of Retained