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Chapter 3: Q38PGA (page 174)

Rapid Way Pack鈥檔 Mail completed the following transactions during

2018:

Nov. 1 Paid \(9,600 store rent covering the six-month period ending April 30, 2019.

Nov. 1 Paid \)6,000 insurance covering the five-month period ending March 31, 2019.

Dec. 1 Collected \(9,000 cash in advance from customers. The service revenue will be earned \)1,800 monthly over the five-month period ending April 30, 2019.

Dec. 1 Collected \(7,200 cash in advance from customers. The service revenue will be earned \)2,400 monthly over the three-month period ending February 28, 2019.

Requirements

1. Journalize the transactions assuming that Rapid Way debits an asset account for prepaid expenses and credits a liability account for unearned revenues.

2. Journalize the related adjusting entries at December 31, 2018.

3. Post the journal and adjusting entries to the T-accounts, and show their balances at December 31, 2018. (Ignore the Cash account.)

4. Repeat Requirements 1鈥�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.

Short Answer

Expert verified

Service Revenue Earned: $ 4,200

Total Expense incurred: $ 5,600

Step by step solution

01

Recording of journal entry

Date

Particular

Debit

Credit

2018

Nov 1

Prepaid Rent

$ 9,600

Cash

$ 9,600

Being rent paid in advance

Nov 1

Prepaid Insurance

$6,000

Cash

$6,000

Being insurance taken for 6 months

Dec 1

Cash

$ 9,000

Unearned Revenue

$ 9,000

Being revenue received in advance

Dec 1

Cash

$ 7,200

Unearned Revenue

$ 7,200

Being revenue received in advance

Total

$ 31,800

$ 31,800

02

Recording of adjusting journal entry

Date

Particular

Debit

Credit

2018

Dec 31

Rent Expense

$ 3,200

Prepaid Rent

$ 3,200

Being rent expense incurred for 2 months

Dec 31

Insurance Expense

$2,400

Prepaid Insurance

$2,400

Being insurance expense incurred for 2 months

Dec 31

Unearned Revenue

$ 1,800

Service Revenue

$ 1,800

Being revenue received for one month

Dec 31

Unearned Revenue

$ 2,400

Service Revenue

$ 2,400

Being revenue received for one month

Total

$ 9,800

$ 9,800

03

Posting into ledger

Prepaid Rent

Date

Particular

Debit

Date

Particular

Credit

2018

Nov 1

To Cash

$ 9,600

Dec 31

By Rent Expense

$ 3,200

Dec 31

By Balance c/d

6,400

$ 9,600

$ 9,600

Prepaid Insurance

Date

Particular

Debit

Date

Particular

Credit

2018

Nov 1

To Cash

$ 6,000

Dec 31

By Insurance Expense

$ 2,400

Dec 31

By Balance c/d

3,600

$ 6,000

$ 6,000

Rent Expense

Date

Particular

Debit

Date

Particular

Credit

2018

Dec 31

To Prepaid Rent

$ 3,200

Dec 31

By Balance c/d

$ 3,200

Insurance Expense

Date

Particular

Debit

Date

Particular

Credit

2018

Dec 31

To Prepaid Insurance

$ 2,400

Dec 31

By Balance c/d

2,400

Unearned Revenue

Date

Particular

Debit

Date

Particular

Credit

2018

Dec 31

To Service Revenue

$ 1,800

Dec 1

By Cash

$ 9,000

Dec 31

To Service Revenue

$ 2,400

Dec 1

By Cash

7,200

Dec 31

To Balance c/d

$ 12,000

$ 16,200

$ 16,200

Service Revenue

Date

Particular

Debit

Date

Particular

Credit

2018

Dec 31

To Balance c/d

$ 4,200

Dec 31

By Unearned Revenue

$ 1,800

Dec 31

By Unearned Revenue

2,400

$ 4,200

$ 4,200

04

Repetition of requirement 1, 2 and 3

Date

Particular

Debit

Credit

2018

Nov 1

Rent Expense

$ 9,600

Cash

$ 9,600

Being rent paid in advance

Nov 1

Insurance Expense

$6,000

Cash

$6,000

Being insurance taken for 6 months

Dec 1

Cash

$ 9,000

Service Revenue

$ 9,000

Being revenue received in advance

Dec 1

Cash

$ 7,200

Service Revenue

$ 7,200

Being revenue received in advance

Total

$ 31,800

$ 31,800

Date

Particular

Debit

Credit

2018

Dec 31

Prepaid Rent

$ 6,400

Rent Expense

$ 6,400

Being rent expense deferred for 4 months

Dec 31

Prepaid Insurance

$3,600

Insurance Expense

$3,600

Being insurance expense deferred for 3 months

Dec 31

Service Revenue

$ 7,200

Unearned Revenue

$ 7,200

Being revenue deferred for four month

Dec 31

Service Revenue

$ 4,800

Unearned Revenue

$ 4,800

Being revenue deferred for two month

Total

$ 22,000

$ 22,000

Prepaid Rent

Date

Particular

Debit

Date

Particular

Credit

2018

Dec 31

To Rent Expense

$ 6,400

Dec 31

By Balance c/d

6,400

$ 6,400

$ 6,400

Prepaid Insurance

Date

Particular

Debit

Date

Particular

Credit

2018

Dec 31

To Insurance Expense

$ 3,600

Dec 31

By Balance c/d

3,600

$ 3,600

$ 3,600

Rent Expense

Date

Particular

Debit

Date

Particular

Credit

2018

Nov 1

To Cash

$ 9,600

Dec 31

By Prepaid Rent

$ 6,400

Dec 31

By Balance c/d

3,200

$ 9,600

$ 9,600

Insurance Expense

Date

Particular

Debit

Date

Particular

Credit

2018

Nov 1

To Cash

$ 6,000

Dec 31

By Prepaid Insurance

$ 3,600

Dec 31

By Balance c/d

2,400

$ 6,000

$ 6,000

Unearned Revenue

Date

Particular

Debit

Date

Particular

Credit

2018

Dec 31

To Balance c/d

$ 12,000

Dec 31

By Service Revenue

$ 7,200

Dec 31

By Service Revenue

4,800

$ 12,000

$ 12,000

Service Revenue

Date

Particular

Debit

Date

Particular

Credit

2018

Dec 31

To Unearned Revenue

$ 7,200

Dec 1

By Cash

$ 9,000

Dec 31

To Unearned revenue

4,800

Dec 1

By Cash

7,200

Dec 31

To Balance c/d

4,200

$ 16,200

$ 16,200

05

Comparison

Account Name

Account Balance under method 1

Account Balance under method 2

Rent Expense

$ 3,200 (Dr.)

$ 3,200 (Dr.)

Prepaid Rent

6,400 (Dr.)

6,400 (Dr.)

Insurance Expense

2,400 (Dr.)

2,400 (Dr.)

Prepaid Insurance

3,600 (Dr.)

3,600 (Dr.)

Unearned Revenue

12,000 (Cr.)

12,000 (Cr.)

Service Revenue

4,200 (Cr.)

4,200 (Cr.)

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Most popular questions from this chapter

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