Reference no: EM132314956
Question
Action Quest Games adjusts its accounts annually. The following information is available for the year ended December 31, 2020.
Prepare and post transaction and adjusting entries for prepayments.
1. Purchased a 1-year insurance policy on June 1 for $1,800 cash.
2. Paid $6,500 on August 31 for 5 months' rent in advance.
3. On September 4, received $3,600 cash in advance from a company 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 $1,000 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 $1,500 in advance from a gaming club. Determined that on December 31, $475 of these games had not yet been played.
Instructions
a. For each of the above transactions, prepare the journal entry to record the initial transaction.
b. For each of the above transactions, prepare the adjusting journal entry that is required on December 31, (Hint: Use the account Service Revenue for item 3 and Maintenance and Repair Expense for item 4.)
(Weygandt 3-46-3-47)
Weygandt, Jerry J., Paul Kimmel, Donald Kieso. Financial Accounting with International Financial Reporting Standards, 4th Edition. Wiley, 07/2018. VitalBook file.
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