Question

Blossom Games Inc. adjusts its accounts annually. The following information is available for the year ended December 31, 2022.

1.Purchased a 1-year insurance policy on June 1 for $2,520 cash.
2.Paid $7,670 on August 31 for 5 months’ rent in advance.
3.On September 4, received $4,320 cash in advance from a corporation to sponsor a game each month for a total of 9 months for the most improved students at a local school.
4.Signed a contract for cleaning services starting December 1 for $1,180 per month. Paid for the first 2 months on November 30. (Hint: Use the account Prepaid Cleaning to record prepayments.)
5.On December 5, received $1,770 in advance from a gaming club. Determined that on December 31, $560 of these games had not yet been played.
(a)
For each of the above transactions, prepare the journal entry to record the initial transaction

Answer 1

The initial journal entries for Blossom Games Inc. reflect prepaid expenses for insurance, rent, and cleaning services and advance receipts for game sponsorships and club membership, adhering to accrual accounting principles to match revenues and expenses with their respective periods.

Step-by-step explanation:

To record the initial transactions for Blossom Games Inc. for the year ended December 31, 2022, we need to create journal entries based on the provided information. The entries should reflect the cash outflows for prepaid expenses and the cash inflows for advances received. For the purchase of a 1-year insurance policy on June 1 for $2,520 cash, an asset account called Prepaid Insurance should be debited, and Cash should be credited. When $7,670 was paid on August 31 for 5 months' rent in advance, another asset account, Prepaid Rent, should be debited, and Cash should be credited.

Upon receipt of $4,320 cash on September 4 from a corporation for sponsoring a game each month, Unearned Revenue should be debited as a liability, and Cash should be credited since the services are to be provided in the future. The contract for cleaning services starting December 1 results in a $1,180 debit to Prepaid Cleaning and a credit to Cash for the two months paid on November 30. Finally, when $1,770 is received in advance from a gaming club on December 5 with $560 of games not yet played by December 31, Unearned Revenue should be debited, and Cash should be credited, with the understanding that revenue recognition will occur when the games are played.