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Understanding the alternative treatment of prepaid expenses and unearned revenues
Night Flyer Pack’n Mail completed the following transactions during 2016:
Nov. 1 | Paid $2,000 store rent covering the four-month period ending February 28, 2017. |
Nov. 1 | Paid $12,500 insurance covering the five-month period ending March 31, 2017. |
Dec. 1 | Collected $4,500 cash in advance from customers. The service revenue will be earned $1,500 monthly over the three-month period ending February 28, 2017. |
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 April30, 2017. |
Requirements
1. Journalize the transactions assuming that Night Flyer debits an asset account for prepaid expenses and credits a liability account for unearned revenues.
2. Journalize the related
3. Post the journal and adjusting entries to the T-accounts, and show their balances at December 31, 2016. (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.
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Chapter 3 Solutions
Horngren's Financial & Managerial Accounting, The Financial Chapters (Book & Access Card)
- Tanishk Manufacturing has gross sales of $45,000 for the year. Its cost for the goods sold is $28,000. Returns and allowances amounted to $3,500. It purchased equipment normally selling for $12,000 at a 25% discount. Based on these facts, what is its total gross income for the year? tutor please provide answerarrow_forwardMajestic Collectibles can produce keepsakes that will be sold for $75 each. Non-depreciation fixed costs are $1,200 per year, and variable costs are $55 per unit. What is the degree of operating leverage of Majestic Collectibles when sales are $8,250? Accurate answerarrow_forwardGeneral Accountingarrow_forward
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