174 Chapter 4 The Accounting Cycle: Accruals and Deferrals LO4-1, LO4-2, LO4-3,L

Question

174 Chapter 4 The Accounting Cycle: Accruals and Deferrals LO4-1, LO4-2, LO4-3,L04-4, Carnival Corporation & PL.C is one of the world's largest cruise line companies. Its printin 04.5, L04.6, LO4.7 EXERCISE 4.4 Preparing Adjusting Entries are later converted to Cruise Revenue as voyages are completed to Convert an Asset to an costs for brochures are initially recorded as Prepaid Advertising and are later charged to Adver tising Expense when they are mailed. Passenger deposits for upcoming cruises are considered unearned revenue and are recorded as Customer Deposits as cash is received. Deposited amounts Where in its financial statements does Carnival Corpoartion& PLC report Prepaid Advertis- ing? Where in its financial statements does it report Customer Deposits? a. Expense and to Convert a Liability to Revenue b. Prepare the adjusting entry necessary when brochures costing $2.4 million are mailed c. In its most recent annual report, Carnival Corporation & PLC reported Customer Deposits of $3.3 billion. Prepare the adjusting entry necessary in the following year as $48 million of this amount is earned d. Consider the entire adjusting process at Carnival Corporation & PLC. Which adjusting entry do you think results in the most significant expense reported in the company's income statement?

Explanation / Answer

a)

Advertising cost is the kind of expense, prepaid advertising cost is paid in advance.As per matching concept only related costs are charged against income.

So prepaid expense is current asset and it is shown asset side under current asset head.

Passenger deposits for upcoming cruises are considered as unearned revenue,so unearned revenue is a liability it is shown under current liability.

b) adjustment entry:

Advertisement expenses A/c Dr. $2.4 millon

To prepaid advertisement expense A/c $2.4 million

( Being advertisement expense incurred charged against prepaid advertisement expense)

C)

Cash. A/c Dr $ 48 million

To cash deposits $48 million

(Being cash received treated as unearned revenue and transferred to customer deposits account)

D)

For fair presentation of financial statements company should report income and expenses when ever they incurred and earned.advertising and unearned revenue entries both give good results.

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