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Chapter 3: Q15RQ (page 157)
What is a deferred revenue? Provide an example.
Deferred revenue refers to the revenue which has not been earned today, but will be earned in future. Example : Advance payment received from the customer for services to be provided next year.
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Under the revenue recognition principle, when is revenue recorded?
Question :At the beginning of the year, office supplies of \(1,200 were on hand. During the year, Tempo Air Conditioning Service paid \)4,000 for more office supplies. At the end of the year, Tempo has $800 of office supplies on hand. Requirements 1. Record the adjusting entry assuming that Tempo records the purchase of office supplies by initially debiting an asset account. Post the adjusting entry to the Office Supplies and Supplies Expense T-accounts. Make sure to include the beginning balance and purchase of office supplies in the Office Supplies T-account. 2. Record the adjusting entry assuming that Tempo records the purchase of office supplies by initially debiting an expense account. Post the adjusting entry to the Office Supplies and Supplies Expense T-accounts. Make sure to include the beginning balance in the Office Supplies T-account and the purchase of office supplies in the Supplies Expense T-account. 3. Compare the ending balances of the T-accounts under both approaches. Are they the same?
Question :Momentous Occasions is a photography business that shoots videos at college parties. The freshman class pays \(1,000 in advance on March 3 to guarantee services for its party to be held on April 2. The sophomore class promises a minimum of \)2,800 for filming its formal dance and actually pays cash of \(4,100 on February 28 at the dance. Answer the following questions about the correct way to account for revenue under the accrual basis: a. Considering the \)1,000 paid by the freshman class, on what date was revenue recognized? Did the recognition occur on the same date cash was received? b. Considering the $4,100 paid by the sophomore class, on what date was revenue recognized? Did the recognition occur on the same date cash was received?
Question :A select list of transactions for Anuradha’s Goals follows:
April 1 Paid six months of rent, \(4,800.
10 Received \)1,200 from customer for six-month service contract that
began April 1.
15 Purchased a computer for \(1,000.
18 Purchased \)300 of office supplies on account.
30 Work performed but not yet billed to customer, \(500.
30 Employees earned \)600 in salaries that will be paid May 2
For each transaction, identify what type of adjusting entry would be needed. Select from the following four types of adjusting entries: deferred expense, deferred revenue, accrued expense, and accrued revenue.
On October 1, Orlando Gold Exchange paid cash of $57,600 for computers that are expected to remain useful for three years. At the end of three years, the value of the computers is expected to be zero. Requirements 1. Calculate the amount of depreciation for the month of October using the straightline depreciation method. 2. Record the adjusting entry for depreciation on October 31. 3. Post the purchase of October 1 and the depreciation on October 31 to T-accounts for the following accounts: Computer Equipment, Accumulated Depreciation— Computer Equipment, and Depreciation Expense—Computer Equipment. Show their balances at October 31. 4. What is the computer equipment’s book value on October 31?
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