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Text P. 130 and 133

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480 | CHAPTER 3 Identify when revenue is recognized. (S01) AP Prepare basic analysis, debit/credit analysis, and adjusting journal entry (80 2,3) AP Prepare and post transaction and adjusting “entries for prepayments (02) AP ADJUSTING THE ACCOUNTS. Exercises 1E3-1 For the following independent situations, use professional judgement to determine when the com- pany should recognize revenue from the transactions: (2) WestJet Airlines sells you a nonrefundable arine ticket in September for a flight at Christmas. (©) Leon’s Furniture sells you a home theatre in January on a ‘no money down, no interest, and no payments for one year” promotional deal. (©) The Toronto Blue Jays sell season tickets to games atthe Rogers Centre on-line. Fans can purchase the tickets at any time, although the season does not officially begin until April. Itruns from April trough October. (@) The RBC Financial Group lends you money at the beginning of August. The loan and the interest ate repayable in full atthe end of November. (€)_In August, you order a sweater from Sears using its on-line catalogue. Sears ships the sweater to you in September and you charge i to your Seas credit card, In October, you receive your Seas bill and pay it (©) You pay for a one-year subscription to Canadian Business magazine in May. (8) You purchase a gift card in December from iTunes to give to your friend for her birthday. Your friend uses the giftcard in January. Instructions Identify when revenue should be recognized in each of the above situations, 3-2 Havanese Services Company records adjusting entries on an annual basis. ‘The following informe ‘ion is available tobe used in recording adjusting entries forthe year ended December 31, 2014, 1. Prepaid insurance totalling $350 has expired, Supplies of $300 have been used. . Annual depreciation on equipment is $1,140, |. Unearned service revenue of $260 has been earned, Salaries of $800 are unpaid. Urility expenses for 2014 of $225 are unrecorded and unpaid. Services provided but not collected in cash or recorded total $1,000, 8, Interest of $125 on a note payable has accrued. Instructioris For each adjustment, prepare a basic analysis, a debit/credit analysis, and the adjusting journal entry. Use the following format, in which the first one has been done for you as an example: Adjustment 1: Basic Analysis | The asset Prepaid Insurance is decreased by $350. The expense Insurance | Expense is increased by $350, Debit/Credit | Debits increase expenses: debit Insurance Expense $350. Analysis Credits decrease assets: credit Prepaid Insurance $350. ‘Adjusting Dec.31 Insurance Expense 350 | Journal Prepaid Insurance 350 | Entry To record insurance expired. 3-3. Action Quest Games adjusts its accounts annually, Assume that any prepaid expenses are initially recorded in asset accounts, Assume that any revenue collected in advance is initially recorded as iabil- ties. The following information is available forthe year ended December 31, 2014 1. A $4,020 one-year insurance policy was purchased on April 1, 2014, 2. Paid $6,500 on August 31, 2014, for five months’ rent in advance. 3. On September 27, 2014, received $3,600 cash from a corporation that sponsors games for the most improved students attending a nearby school. The $3,600 was for 10 games, worth $360 each, that are played on the first Priday of each month starting in October. (Use the Unearned Reverie account) 4, Signed a contract for cleaning services starting December 1, 2014, for $500 per month, Paid for the first three months on November 30, 2014. 5. On December 15, 2014, sold $935 of gift certificates to 2 local game club. On December 31, 2014, determined that $545 of these gift certificates had not yet been redeemed. (Use the account ‘Unearned Gift Certificate Revenue.) Problems: Set A OHAPTER 8 | 499 13-10 The adjusted tral balance for Lane Company is given in F3-9, Prepare financial Instructions Sites from agus Prepare Lane Companys income statement, statement of owners equity, and balance sheet (Onan “ESL Refer tothe transaction information proved in E33 for Action Quest Games, Assume that, re- Prepare and post Paldexpenses are initially recorded as expenses (not as asets asin 3-3). Assume that rornons code cod transaction and adjusting ‘advance of the work are initially corded as revenue (not as liabilities asin F3-3) entries for prepayments ($05) aP Instructions {@) For each transaction: (1) prepare the journal entry to record the initial transaction, and (2) prepare the adjusting journal entry required on December 31, 2014, (0) osteachofthes entries to T accounts and calculate the final balance each account, (Note Posting to the Cash account is not necessary) (©) Compare your balances in part (b) above with those obtained in 3-3, pact (b). Comment on your findings, ria At Richmond Company, the following select transactions occurred in January the company's first Prepare and post month of operations: traction and ajsting 1 Parent o$1,00franuary fates fo repeymens 2 Paid $1,920 fora one-year insurance policy. : 5 Pad $1.70 fo upp 18 _Recsved $6100 cash for sevice tobe perforin the tue 31 PaidrentoF81.000 fo brary Additional information: Jari. 3; On Fanutary 31, itis determined that $2,509 ofthe service revenue has been earned. 2. On January 31, acount of supplies shows that there is $650 of supplies on hand. nstructions . (©) Assume Richmond records all prepaid costs as expenses, and all revenue collected in advance ax ceeemnt Journelize the January transactions and post to T accounts. (Note: Posting to the Cash Account is not necessary.) (>) Journalize and post the January 31 adjustments. (c) Determine the ending balances in each of the accounts roblems: Set A LA Ouellete & Associates began operations on January 1, 2014s sal yearend is December 31 and Prepare and post prepares financial statements and adjusts ts accounts anally Selected transactions for 2014 tllegg prepayment transaction ¥ On January 10, bought office suplies for $3,400 cash. A physical count at December 31, 214,

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