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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Magical Memories sells Florida theme park vacation packages to various customers throughout the United States. Magical Memories receives a 5% commission based on the total price of the vacation package. A customer purchased the Deluxe Package valued at $15,000. Prepare Magical Memories’s journal entries to record sale of the vacation package, the receipt of cash from the customer, and the remittance to the theme park.

To determine

Journalize entries to record the sale of the vacation package, the receipt of cash from the customer and the remittance to the theme park.

Explanation

Contract: Contract is an agreement among two parties or more parties which includes enforceable obligations and rights. A contract can be “written oral or implied” by ordinary business practices.

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Accounting rules for Journal entries:

  • To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
  • To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.

Prepare journal entry to record the sale of the vacation package to the customer:

DateAccount title and explanationDebit ($)Credit ($)
 Accounts receivable15,000 
     Sales revenue (1)750
      Payable to principal (Balancing figure) 14,250
      (To record sale of the vacation package)  

Table (1)

  • Accounts receivable is an asset and it is increased. Therefore, debit accounts receivable account by $15,000.
  • Sales revenue is a component of stockholders’ equity and it is increased. Therefore, credit sales revenue account by $750.
  • Payable to principal is a liability and it is increased. Therefore, credit payable to principal account by $14,250.

Prepare journal entry to record the receipt of cash from the customer:

DateAccount title and explanationDebit ($)Credit ($)
Cash15,000 
     Accounts receivable15,000
      (To record receipt of cash)  

Table (2)

  • Cash is an asset and it is increased...

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