Question

Ricardo Construction began operations on December 1. In setting up its accounting procedures, the company decided to debit expense accounts when it prepays its expenses and to credit revenue accounts when customers pay for services in advance. Prepare journal entries for items a through d and the adjusting entries as of its December 31 period-end for items e through g.

a. Supplies are purchased on December 1 for $2,000 cash.
b. The company prepaid its insurance premiums for $1,540 cash on December 2.
c. On December 15, the company receives an advance payment of $13,000 cash from a customer for remodeling work.
d. On December 28, the company receives $3,700 cash from another customer for remodeling work to be performed in January.
e. A physical count on December 31 indicates that the Company has $1,840 of supplies available.
f. An analysis of the insurance policies in effect on December 31 shows that $340 of insurance coverage had expired.
g. As of December 31, only one remodeling project has been worked on and completed. The $5,570 fee for this project had been received in advance and recorded as remodeling fees earned.

Answer 1

Ricardo Construction's accounting entries include initial journal entries for transactions and subsequent adjustments to reflect the usage of supplies, expiration of prepaid insurance, and revenue recognition for services rendered in the reporting period.

Step-by-step explanation:

Journal Entries and Adjustments for Ricardo Construction

Ricardo Construction's journal entries and adjustments for the given transactions are crucial for accurate financial reporting. Here are the entries:

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• a. Supplies Purchase: Debit Supplies $2,000; Credit Cash $2,000.
• 
  
• b. Prepaid Insurance: Debit Prepaid Insurance $1,540; Credit Cash $1,540.
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• c. Advance from Customer: Debit Cash $13,000; Credit Unearned Revenue $13,000.
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• d. Cash for Future Service: Debit Cash $3,700; Credit Unearned Revenue $3,700.
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• e. Supplies Adjustment: Debit Supplies Expense $160 ($2,000 - $1,840); Credit Supplies $160.
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• f. Insurance Expense: Debit Insurance Expense $340; Credit Prepaid Insurance $340.
• 
  
• g. Revenue Recognition: Debit Unearned Revenue $5,570; Credit Remodeling Fees Earned $5,570.

The initial entries record the transactions as they occur. The adjustments ensure that the expenses are recorded in the period they are incurred and that revenues are recognized when earned, in accordance with the matching principle and revenue recognition principle.

Answer 2

Ricardo Construction

General Journal

a.

December 1

Supplies $2,000 (debit)

Cash $2,000 (credit)

Supplies Bought for Cash

b.

December 2

Prepaid Insurance Premium $1,540 (debit)

Cash $1,540 (credit)

Insurance Premium paid in advance

c.

December 15

Cash $13,000 (debit)

Deferred Revenue $13,000 (credit)

Cash received for services not yet performed

d.

December 28

Cash $3,700 (debit)

Deferred Revenue $3,700 (credit)

Cash received for services to be rendered

December 31 period-end entries

e.

Supplies Expense $160 (debit)

Supplies $160 (credit)

Supplies utilized during the year

f.

Insurance Expense $160 (debit)

Prepaid Insurance $160 (credit)

Insurance expired during the year

g.

Deferred Revenue $5,570 (debit)

Service Revenue $5,570 (credit)

Service revenue earned

Step-by-step explanation:

See the journal entries and their narrations prepared above.