12/31 is the end of Domco\'s Inc. fiscal year. The company provides landscape ma
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Question
12/31 is the end of Domco's Inc. fiscal year. The company provides landscape maintenance for industrial parks. Domco requires a 25% deposit on all of its long term (12 months or more) contracts. The amount of maintenance required on the landscapes of the industrial parks varies from month to month and Domco uses a % of completion method of determining how much revenue to recognize from each contract at year end. You have been given the following information to use in preparing the year end adjusting entries:
A.
On 9/1 the company sign a contract with Pacific Enterprizes to provide landscape maintence for one year.
The total contract cost to provide the service for one year was $32,000. Domco required Pacific Enterprizes
to pay it a 25% deposit to start the services. The depost was paid on 9/1. The bookkeeper for Domco
debited Cash and credited Unearned Revenue for the amount received. On 12/31 Domco estimated
that it had completed 15% of the contract.
B.
On 5/1 Domco purchased a $1,000,0000 liability insurance policy. The total cost of the policy was $14,000.
On 5/1 the bookkeeper issued a check for the full amount of the policy's premium in the amount of $14,000.
He debited Pre-paid Insurance and credited Cash on that date. No other entries have been made since.
C.
On 8/1 the company sign a contract with Bow Land Inc. to provide landscape maintence for one year.
The total contract cost to provide the service for one year was $65,000. Domco required Bow Land Inc.
to pay it a 25% deposit to start the services. The depost was paid on 8/1. The bookkeeper for Domco
debited Cash and credited Unearned Revenue for the amount received. On 12/31 Domco estimated
that it had completed 35% of the contract.
A
Un-earned Revenue
$4,800
Revenue
$4,800
REVENUE
B
Insurance Expense
$9,333
Pre-paid Insurance
$9,333
MATCHING
C
Accounts Recievable
$6,500
Un-earned Revenue
$16,250
Revenue
$22,750
Can anyone talk me how this work, and how these number come with? Thank you so much.
A.
On 9/1 the company sign a contract with Pacific Enterprizes to provide landscape maintence for one year.
The total contract cost to provide the service for one year was $32,000. Domco required Pacific Enterprizes
to pay it a 25% deposit to start the services. The depost was paid on 9/1. The bookkeeper for Domco
debited Cash and credited Unearned Revenue for the amount received. On 12/31 Domco estimated
that it had completed 15% of the contract.
Explanation / Answer
A) Since 15% of the contract we have completed so the amount is
15%*32000=$4800
Revenue (cr)$4800
unearned revenue (db) $4800
B)Since the prepaid insurance is for one year what we paid but for year end it is total for 8 months and the amount is (8/12)*14000=$9333.33
c)total $65,000 and in this 35% of contract completed so 35%65,000=$22,750 is revenue to be recognized and 25% of contract is unearned revnue =25%*65000=$16250 and the difference is acc receivbale=22750-16250=$6500
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