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Understanding the alternative treatment of prepaid expenses and unearned revenues
Speedy Pack’n Mail completed the following transactions during 2016:
Nov. 1 | Paid $5,200 store rent covering the four-month period ending February 28, 2017. |
1 | Paid $9,600 insurance covering the six-month period ending April 30, 2017. |
Dec. 1 | Collected $5,400 cash in advance from customers. The service revenue will be earned $1,800 monthly over the three-month period ending February 28, 2017. |
1 | Collected $10,000 cash in advance from customers. The service revenue will be earned $2,000 monthly over the five-month period ending April30, 20 17. |
Requirements
1. Journalize the transactions assuming that Speedy Pack’ n Mail 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 (5th Edition)
- The following data were selected from the records of Fluwars Company for the year ended December 31, current year: Balances at January 1, current year: Accounts receivable (various customers) $ 111,500 Allowance for doubtful accounts 11,200 The company sold merchandise for cash and on open account with credit terms 1/10, n/30, without a right of return. The following transactions occurred during the current year: Sold merchandise for cash, $252,000. Sold merchandise to Abbey Corp; invoice amount, $36,000. Sold merchandise to Brown Company; invoice amount, $47,600. Abbey paid the invoice in (b) within the discount period. Sold merchandise to Cavendish Inc.; invoice amount, $50,000. Collected $113,100 cash from customers for credit sales made during the year, all within the discount periods. Brown paid its account in full within the discount period. Sold merchandise to Decca Corporation; invoice amount, $42,400. Cavendish paid its account in full after the…arrow_forwardI want the correct answer with accountingarrow_forwardSolve with explanation and accounting questionarrow_forward
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