Question

How much did The Home Depot owe for salaries and related expenses at January 29, 2017? Was this an increase or decrease from the previous year? multiple choice 1 $7,000 million (Decrease) $1,484 million (Decrease) $7,000 million (Increase) $1,484 million (Increase) Refer to the Revenues note in the Summary of Significant Accounting Policies that follows The Home Depot’s statements of cash flows. How does the company account for customer payments received in advance of providing services? multiple choice 2 Record the prepayment as revenue. The revenue is deferred until the goods or services are provided to the customer. The funds are not deposited in the bank account and no entry is recorded. The funds are deposited in the bank account and no entry is recorded. What adjusting journal entry must The Home Depot make when it provides services paid by gift card? multiple choice 3 debit Deferred Revenue, credit Net Sales Revenue debit Net Sales Revenue, credit Deferred Revenue debit Deferred Revenue, credit Cash debit Cash, credit Deferred Revenue

Answer 1

The data this question is based on is too much to paste here so I will just answer based on it but without attaching it.

1. $1,484 million (Decrease)

They owed $1,484 million in salaries and related expenses at January 29, 2017.

In 2016 the figure was $1,515 million. Difference is:

= 1,484 - 1,515

= -$31 million ⇒ This is a decrease.

2. The revenue is deferred until the goods or services are provided to the customer.

As should be the case when it comes to the Revenue Recognition principle of the Accrual methods, revenue will only be recognized after the relevant goods and services have been provided to the customer. Until then it is classified as deferred revenue.

3. debit Deferred Revenue, credit Net Sales Revenue

Gift cards are to be considered deferred revenue because even though Home Depot have received payment for the cards, they have not supplied any goods for it. When the cards are then used, the deferred revenue should be debited to reduce it and Net Sales revenue should be credited to recognize it as revenue for the period.