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Chapter 3: Q44PGB (page 179)

Sent It Pack鈥檔 Mail completed the following transactions during2018:

Nov. 1 Paid \(6,000 store rent covering the four-month period ending February 28, 2019.

1 Paid \)7,800 insurance covering the six-month period ending April 30, 2019.

Dec. 1 Collected \(12,000 cash in advance from customers. The service revenue will be earned \)2,400 monthly over the five-month period ending April 30, 2019.

1 Collected \(7,500 cash in advance from customers. The service revenue will be earned \)1,500 monthly over the five-month period ending April 30, 2019.

Requirements

1. Journalize the transactions assuming that Sent It Pack鈥檔 Mail 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: $ 3,900

Total Expense incurred: $ 5,600

Step by step solution

01

Recording of journal entry

Date

Particular

Debit

Credit

2018

Nov 1

Prepaid Rent

$ 6,000

Cash

$ 6,000

Being rent paid in advance for 4 months

Nov 1

Prepaid Insurance

$7,800

Cash

$7,800

Being insurance taken for 6 months

Dec 1

Cash

$ 12,000

Unearned Revenue

$ 12,000

Being revenue received in advance for 5 months

Dec 1

Cash

$ 7,500

Unearned Revenue

$ 7,500

Being revenue received in advance for 5 months

Total

$ 33,300

$ 33,300

02

Recording of adjusting entry

Date

Particular

Debit

Credit

2018

Dec 31

Rent Expense

$ 3,000

Prepaid Rent

$ 3,000

Being rent expense incurred for 2 months

Dec 31

Insurance Expense

$2,600

Prepaid Insurance

$2,600

Being insurance expense incurred for 2 months

Dec 31

Unearned Revenue

$ 2,400

Service Revenue

$ 2,400

Being revenue received for one month

Dec 31

Unearned Revenue

$ 1,500

Service Revenue

$ 1,500

Being revenue received for one month

Total

$ 9,500

$ 9,500

03

Posting into the ledger

Prepaid Rent

Date

Particular

Debit

Date

Particular

Credit

2018

Nov 1

To Cash

$ 6,000

Dec 31

By Rent Expense

$ 3,000

Dec 31

By Balance c/d

3,000

$ 6,000

$ 6,000

Prepaid Insurance

Date

Particular

Debit

Date

Particular

Credit

2018

Nov 1

To Cash

$ 7,800

Dec 31

By Insurance Expense

$ 2,600

Dec 31

By Balance c/d

5,200

$ 7,800

$ 7,800

Rent Expense

Date

Particular

Debit

Date

Particular

Credit

2018

Dec 31

To Prepaid Rent

$ 3,000

Dec 31

By Balance c/d

$ 3,000

Insurance Expense

Date

Particular

Debit

Date

Particular

Credit

2018

Dec 31

To Prepaid Insurance

$ 2,600

Dec 31

By Balance c/d

2,600

Unearned Revenue

Date

Particular

Debit

Date

Particular

Credit

2018

Dec 31

To Service Revenue

$ 2,400

Dec 1

By Cash

$ 12,000

Dec 31

To Service Revenue

$ 1,500

Dec 1

By Cash

7,500

Dec 31

To Balance c/d

$ 15,600

$ 19,500

$ 19,500

Service Revenue

Date

Particular

Debit

Date

Particular

Credit

2018

Dec 31

To Balance c/d

$ 3,900

Dec 31

By Unearned Revenue

$ 2,400

Dec 31

By Unearned Revenue

1,500

$ 3,900

$ 3,900

04

Repetition of requirements 1, 2 and 3

Date

Particular

Debit

Credit

2018

Nov 1

Rent Expense

$ 6,000

Cash

$ 6,000

Being rent paid in advance

Nov 1

Insurance Expense

$7,800

Cash

$7,800

Being insurance taken for 6 months

Dec 1

Cash

$ 12,000

Service Revenue

$ 12,000

Being revenue received in advance

Dec 1

Cash

$ 7,500

Service Revenue

$ 7,500

Being revenue received in advance

Total

$ 33,300

$ 33,300

Date

Particular

Debit

Credit

2018

Dec 31

Prepaid Rent

$ 3,000

Rent Expense

$ 3,000

Being rent expense deferred for 2 months

Dec 31

Prepaid Insurance

$5,200

Insurance Expense

$5,200

Being insurance expense deferred for 4 months

Dec 31

Service Revenue

$ 9,600

Unearned Revenue

$ 9,600

Being revenue deferred for four month

Dec 31

Service Revenue

$ 6,000

Unearned Revenue

$ 6,000

Being revenue deferred for four month

Total

$ 23,800

$ 23,800

Prepaid Rent

Date

Particular

Debit

Date

Particular

Credit

2018

Dec 31

To Rent Expense

$ 3,000

Dec 31

By Balance c/d

3,000

$ 3,000

$ 3,000

Prepaid Insurance

Date

Particular

Debit

Date

Particular

Credit

2018

Dec 31

To Insurance Expense

$ 5,200

Dec 31

By Balance c/d

5,200

$ 5,200

$ 5,200

Rent Expense

Date

Particular

Debit

Date

Particular

Credit

2018

Nov 1

To Cash

$ 6,000

Dec 31

By Prepaid Rent

$ 3,000

Dec 31

By Balance c/d

3,000

$ 6,000

$ 6,000

Insurance Expense

Date

Particular

Debit

Date

Particular

Credit

2018

Nov 1

To Cash

$ 7,800

Dec 31

By Prepaid Insurance

$ 5,200

Dec 31

By Balance c/d

2,600

$ 7,800

$ 7,800

Unearned Revenue

Date

Particular

Debit

Date

Particular

Credit

2018

Dec 31

To Balance c/d

$ 15,600

Dec 31

By Service Revenue

$ 9,600

Dec 31

By Service Revenue

6,000

$ 15,600

$ 15,600

Service Revenue

Date

Particular

Debit

Date

Particular

Credit

2018

Dec 31

To Unearned Revenue

$ 9,600

Dec 1

By Cash

$ 12,000

Dec 31

To Unearned revenue

6,000

Dec 1

By Cash

7,500

Dec 31

To Balance c/d

3,900

$ 19,500

$ 19,500

05

Comparison

Account Name

Account Balance under method 1

Account Balance under method 2

Rent Expense

$ 3,000 (Dr.)

$ 3,000 (Dr.)

Prepaid Rent

3,000 (Dr.)

3,000 (Dr.)

Insurance Expense

2,600 (Dr.)

2,600 (Dr.)

Prepaid Insurance

5,200 (Dr.)

5,200 (Dr.)

Unearned Revenue

15,600 (Cr.)

15,600 (Cr.)

Service Revenue

3,900 (Cr.)

3,900 (Cr.)

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Most popular questions from this chapter

Identify the impact on the income statement and balance sheet if adjusting entries for the following situations were not recorded. a. Office Supplies used, \(800. b. Accrued service revenue, \)4,000. c. Depreciation on building, \(3,500. d. Prepaid Insurance expired, \)650. e. Accrued salaries expense, \(2,750. f. Service revenue that was collected in advance has now been earned, \)130

Question :Laughter Landscaping has collected the following data for the December 31 adjusting entries: a. Each Friday, Laughter pays employees for the current week鈥檚 work. The amount of the weekly payroll is \(8,000 for a five-day workweek. This year, December 31 falls on a Tuesday. Laughter will pay its employees on January 3. b. On January 1 of the current year, Laughter purchases an insurance policy that covers two years, \)8,000.c. The beginning balance of Office Supplies was \(4,300. During the year, Laughter purchased office supplies for \)5,600, and at December 31 the office supplies on hand total \(1,500. d. During December, Laughter designed a landscape plan and the client prepaid \)6,500. Laughter recorded this amount as Unearned Revenue. The job will take several months to complete, and Laughter estimates that the company has earned 40% of the total revenue during the current year. e. At December 31, Laughter had earned \(3,000 for landscape services completed for Turnkey Appliances. Turnkey has stated that it will pay Laughter on January 10. f. Depreciation for the current year includes Equipment, \)3,000; and Trucks, \(2,200. g. Laughter has incurred \)250 of interest expense on a $550 interest payment due on January 15. Requirements 1. Journalize the adjusting entry needed on December 31 for each of the previous items affecting Laughter Landscaping. Assume Laughter records adjusting entries only at the end of the year. 2. Journalize the subsequent journal entries for adjusting entries a, d, and g.

Question :In recording adjusting entries, Reagan Financial Advisors failed to record the adjusting entries for the following situations: a. Office supplies on hand, \(100. b. Accrued revenues, \)5,000. c. Accrued interest expense, \(250. d. Depreciation, \)800. e. Unearned revenue that has been earned, $550. Determine the effects on the income statement and balance sheet by identifying whether assets, liabilities, equity, revenue, and expenses are either overstated or understated. Use the following table. Adjustment a has been provided as an example.Adjustment Not Recorded (a) Overstated Overstated Understated Assets Liabilities Equity Revenue Expenses Balance Sheet Income Statement

Question :Austin Acoustics recorded the following transactions during October: a. Received \(2,500 cash from customer for three months of service beginning October 1 and ending December 31. The company recorded a \)2,500 debit to Cash and a \(2,500 credit to Unearned Revenue. b. Employees are paid \)3,000 on Monday following the five-day workweek. October 31 is on Friday. c. The company pays \(440 on October 1 for its six-month auto insurance policy. The company recorded a \)440 debit to Prepaid Insurance and a \(440 credit to Cash. d. The company purchased office furniture for \)8,300 on January 2. The company recorded a \(8,300 debit to Office Furniture and an \)8,300 credit to Accounts Payable. Annual depreciation for the furniture is \(1,000. e. The company began October with \)50 of office supplies on hand. On October 10, the company purchased office supplies on account of \(100. The company recorded a \)100 debit to Office Supplies and a \(100 credit to Accounts Payable. The company used \)120 of office supplies during October. f. The company received its electric bill on October 31 for \(325 but did not pay it until November 10. g. The company paid November鈥檚 rent of \)2,500 on October 30. On October 30, the company recorded an \(2,500 debit to Rent Expense and a \)2,500 credit to Cash. Indicate if an adjusting entry is needed for each item on October 31 for the month of October. Assuming the adjusting entry is not made, indicate which specific category or categories of accounts on the financial statements are misstated and if they are overstated or understated. Use the following table as a guide. Item a is completed as an example:used.

On September 1, Big Fan of Toledo prepaid six months of rent, $3,300. Requirements 1. Record the journal entry for the September 1 payment. 2. Record the adjusting entry required at September 30. 3. Using T-accounts, post the journal entry and adjusting entry to the accounts involved and show their balances at September 30. (Ignore the Cash account.)
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