Question

Acton Quest Games Inc. adjust accounts annually. The following information is available for the year ended December 31, 2017.

Purchased a 1-year insurance policy on June 1 for $1,320 cash.
Paid $6,100 on August 31 for 5 months' rent in advance.
On September 4, received $3,240 cash in advance from e corporation to sponsor a game each month for a total of 9 months for the most improved students at local school.
Signed a contract for cleaning services starting December 1 for $1,150 per month. Paid for the first 2 months on November 30. (Hint: use the account Prepaid Cleaning to record
On December S, received $2,600 in advance from a gaming dub. Determined that on December 32, $350 of these games had not yet been played.

Required:
For each of the above transactions, record the adjustment that is required on December 31.

Answer 1

Dec 31

1.

Insurance expense 770 Dr

Prepaid Insurance 770 Cr

2.

Rent Expense 4880 Dr

Prepaid Rent 4880 Cr

3.

Unearned Service Revenue 1440 Dr

Service Revenue 1440 Cr

4.

Cleaning Expense 1150 Dr

Prepaid Cleaning 1150 Cr

5.

Unearned Service Revenue 2250 Dr

Service Revenue 2250 Cr

Step-by-step explanation:

1.

The insurance policy is for 1 year. The per year expense is = 1320 / 12 = 110

Till December, 7 months of insurance expense will be charged = 110 * 7 = 770

2.

The rent is paid in advance for 5 months till January. Till December, 4 months of rent has been consumed.

Rent expense will be debited by = 6100 / 5 * 4 = 4880

3.

The cash is received in advance for service providing for the 9 months from September. Till December, 4 months of service revenue would have been earned.

Service revenue will be credited by = 3240 / 9 * 4 = 1440

4.

The cash is paid for cleaning service in advance for 2 months till January next year. Till December, one month of service would have been availed so cleaning expense will be debited by $1150 and prepaid cleaning will be credited by $1150

5.

The cash is received in advance for service to be provided. Till the end of December, $2250 (2600 - 350) of service has been provided. So service revenue will be credited by $2250 and unearned service revenue will be debited by $2250