e Exercises E3-13 e Comparing accrual and cash-basis accounting, and applying th
ID: 2602725 • Letter: E
Question
e Exercises E3-13 e Comparing accrual and cash-basis accounting, and applying the revenue recognition principle [5-10 min] Momentous Occasions is a photography business that shoots videos at college parties. The freshman class pays $100 in advance on March 3 just to guarantee your services for its party to be held April 2. The sophomore class promises a minimum of $280 for filming its formal dance, and actually pays cash of $410 on February 28 at the party Requirement Answer the following questions about the correct way to account for revenue under the accrual basis. a. Considering the $100 paid by the freshman class, on what date was revenue 1. earned? Did the earnings occur on the same date cash was received? b. Considering the $410 paid by the sophomore class, on what date was revenue earned? Did the earnings occur on the same date cash was received? P3-30A Explain why an adjusting entry is needed and calculate the amount of the adjustment [15-25 min) Descriptions of transactions and how they were recorded follow for October, 2012 for Ausley Acoustics a. Received $1,500 cash from customer for three math' of service begening (enber· of service beginning Ocsober 1, 2012, and and ending December 31, 2012. The company recorded a $1,500 debt to Cab aed·S.soemd, to b. Employees are paid $1,000 every Friday for the five- day wock week Otober 31, 2012, c. The company pays $240 on Okctober 1 for thesir sis-moeth auto insurance poicy. The company d. The company purchased office furmiture for $6,300 ce Jasuary 2, 2012. The commpany recorded a Uncarned service revence. Wednesday recorded a $240 debit to Prepaid insurance and a $240 credie to Cash 56,300 dehit to Office furniture and a $6,300 credit to Accounts payable. Anqual deprociation for the furniture is $900 e·The company beganOctober with S50 of supplies on hand. OnOctober 10,the company purchased supplies on account of $100, Tecompuny recorded a $100 debit to Supplies and a $100 credit to Accounts payable. The company ssed $120 of sapplies dering Octoher On November 10, it socoedd $125 dehit to Ubilixies expense and a $125 credit to Cash an 5800 debit to Rens expoterd5800 cdio Cash f. The company recerved its electric bill on Ocsuber 30 for $125 but did not pay it until November 10 E The company paid Nowermber's r Ocbee 30 of 5800. Os Ocrober 30, the company recoeded Requirement Indicate if adjusti.g unty is needed for each item on October 31 and why the entry is needed D an metar lability account is over/understated). Indicate which specific account on the balance shect is misstated. Finally, indicate the cor rect balance that should appear in the balance sheet account after the adjustment is made. Use the following table guide. Item a is completed as an example 1. Correct balance on October 31 $1,000 Adjustment Asct Over/ Balance shect needed? Yes Liabality Understated Liabdiay ItemExplanation / Answer
1)a since the momentous occasions received advance $100 on march 3, and actually rendered service of photography on April 2, under accrual basis the revenue is recorded when service rendered , in this case
hence considering the $100 paid by the freshman class , revenue was earned on April 2, and revenue did not occurred on the same date cash was received.
1)b since the momentous occasions received $410 on feb 28 at the party, and actually rendered service of photography on feb 28, under accrual basis the revenue is recorded when service rendered , in this case
hence considering the $410 paid by the sophomore class , revenue was earned on Feb 28, and revenue did occurred on the same date cash was received.
P3-30A
the amount was received for 3 months oct, nov ,dec and oct has passed and Aushley has rendered service for oct and earned 500 (1500/3) for the same , hence unearned balance is = 1500-500=1000
since the salary is paid on every friday and on oct 31st its wed , so we will not pay salary on oct 31 but its due after 2 days ,so we have torecord the liability i.e. salary payable for 3 days(mon, tue, wed ) by 1000/5= 200 perday
since prepaid insuance policy on oct 1 for six months, at 31st oct , company paid for october not a prepaid for october. so asset should decrease by 40 for 1 month. (240/6 month)
since depreciation is annual and on oct 31 ,10months have passed, deprecation per month is 900/12=75per month
depreciation reduces fixed asset balance.hence office furniture overstated
since 120 used , now the company is left with only 30 in hand, hence inventory account need to be updated
since bill received on oct 30 , but not paid hence expense id due for payment till 10 nov, so record liabilty
the company should have debited prepaid rent 800 and credited cash 800, since rent is paid for november and we arestandingat oct 31 so its prepaid.
ITEM ADJUSTMENT NEEDED ASSET/LIABILITY OVER/UNDER STATED BALANCESHEETACCOUNT CORRECTBALANCEONOCTOBER31 a yes liability overstated unearned service revenue 1000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.