Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 3: Q38PGA (page 174)

Rapid Way Pack’n 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 1–3. 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.)

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

When is an adjusted trial balance prepared, and what is its purpose?

Question :Chef ’s Catering completed the following selected transactions during May 2018: Learning Objectives 1, 2 Learning Objectives 1, 2 > Exercises May 1 Prepaid rent for three months, \(2,400. 5 Received and paid electricity bill, \)700. 9 Received cash for meals served to customers, \(2,600. 14 Paid cash for kitchen equipment, \)3,000. 23 Served a banquet on account, \(2,800. 31 Made the adjusting entry for rent (from May 1). 31 Accrued salary expense, \)1,600. 31 Recorded depreciation for May on kitchen equipment, \(50. Date May 1 \)(2,400) $0 Cash Basis Amount of Revenue (Expense) Accrual Basis Amount of Revenue (Expense) Amount of Revenue (Expense) for May Requirements 1. Show whether each transaction would be handled as a revenue or an expense using both the cash basis and accrual basis accounting systems by completing the following table. (Expenses should be shown in parentheses.) Also, indicate the dollar amount of the revenue or expense. The May 1 transaction has been completed as an example. 2. After completing the table, calculate the amount of net income or net loss for Chef ’s Catering under the accrual basis and cash basis accounting systems for May. 3. Considering your results from Requirement 2, which method gives the best picture of the true earnings of Chef ’s Catering? Why?

Question :Consider the following independent situations at December 31: a. On October 1, a business collected \(3,000 rent in advance, debiting Cash and crediting Unearned Revenue. The tenant was paying one year’s rent in advance. On December 31, the business must account for the amount of rent it has earned. b. Salaries expense is \)1,800 per day—Monday through Friday—and the business pays employees each Friday. This year, December 31 falls on a Thursday. c. The unadjusted balance of the Office Supplies account is \(3,000. Office supplies on hand total \)1,900. d. Equipment depreciation was \(500. e. On April 1, when the business prepaid \)4,320 for a two-year insurance policy, the business debited Prepaid Insurance and credited Cash. Journalize the adjusting entry needed on December 31 for each situation. Use the letters to label the journal entries

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

On October 1, 2018, Kitchen Design paid $15,000 for store rent covering the six-month period ending March 31, 2019.
See all solutions

Recommended explanations on Business Studies Textbooks

Financial Performance

Read Explanation

Organizational Behavior

Read Explanation

Business Case Studies

Read Explanation

Managerial Economics

Read Explanation

Strategic Analysis

Read Explanation

Nature of Business

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free