1.
Journalize entries for January through March.
1.
Explanation of Solution
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.
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 entries:
Date | Account titles and explanation | Debit ($) | Credit ($) |
January,2017 | Cash (1) | 150,000 | |
unearned revenue | 150,000 | ||
( To record the sale of gift cards) | |||
Febraury,2017 | Unearned revenue | 45,000 | |
Sales revenue | 45,000 | ||
(To record the amount of unearned revenue) | |||
Unearned revenue (2) | 5,400 | ||
Sales revenue | 5,400 | ||
(To record the amount of unearned revenue) | |||
March,2017 | Unearned revenue | 80,000 | |
Sales revenue | 80,000 | ||
(To record the amount of unearned revenue) | |||
Unearned revenue (3) | 9,600 | ||
Sales revenue | 9,600 | ||
(To record the amount of unearned revenue) | |||
Sales revenue (4) | 5,000 | ||
Unearned revenue | 5,000 | ||
(To record the amount of sales revenue) |
Table (1)
Working notes:
(1)Calculate the amount of cash:
(2)Calculate the amount of unearned revenue (breakage revenue) during February, 2017:
(3)Calculate the amount of unearned revenue (breakage revenue) during March, 2017:
(4)Calculate the amount of sales revenue (breakage revenue adjustment) during March, 2017:
2.
Prepare journal entries, assuming that the Incorporation E reduces its estimate amount of gift cards.
2.
Explanation of Solution
Prepare journal entries:
Date | Account titles and explanation | Debit ($) | Credit ($) |
April,2017 | Unearned revenue | 10,000 | |
Sales revenue | 10,000 | ||
(To record the amount of unearned revenue) |
Table (2)
- Unearned revenue is a liability and it is decreased. Therefore, debit unearned revenue account by$10,000.
- Sales revenue is a component of
stockholders’ equity and it is increased. Therefore, credit sales revenue account by $10,000.
Date | Account titles and explanation | Debit ($) | Credit ($) |
April,2017 | Unearned revenue (5) | 800 | |
Sales revenue | 800 | ||
(To record the amount of unearned revenue) |
Table (3)
- Unearned revenue is a liability and it is decreased. Therefore, debit unearned revenue account by$800.
- Sales revenue is a component of stockholders’ equity and it is increased. Therefore, credit sales revenue account by $800.
Working note:
(5)Calculate the amount of unearned revenue (breakage revenue) during April, 2017:
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Chapter 17 Solutions
Intermediate Accounting: Reporting and Analysis
- Block Foods, a retail grocery store, has agreed to purchase all of its merchandise from Square Wholesalers. In return. Block receives a special discount on purchases. Over recent months, Square noticed that purchases by Block had been falling off. At first, Square simply thought that business might be down for Block and was hopeful that their purchases would pick up. When business with Block did not return to a normal level, Square requested financial statements from Block. Squares records indicate that Block purchased 300,000 worth of merchandise during 20-1, the most recent year. Selected information taken from Block's financial statements is as follows: REQUIRED Compute net purchases made by Block during 20-1. Does it appear that Block violated the agreement?arrow_forwardOn December 1, 2019, AwakcAllNight Inc. sells 5,000 super caffeinated candy bars to Campus Grocers. The candy bars sell for 3 per bar. In addition, AwakcAllNight pays Campus Grocers a 900placement fee to ensure that its candy bars are always stocked prominently by the cash register. The 900 is paid at the end of each month based on the results of random inspections of Campus Grocers by AwakcAllNight to ensure that the terms of the contract are being followed. Required: 1. Determine the transaction price for Awake AllNights revenue contract. 2. Prepare AwakeAllNights journal entries to recognize sales revenue and pay Campus Grocers the placement fee.arrow_forwardBavarian Bar and Grill opened for business in November 2018. During its first two months of operation, the restaurant sold gift certificates in various amounts totaling $5,200, mostly as Christmas presents. They are redeemablefor meals within two years of the purchase date, although experience within the industry indicates that 80% of giftcertificates are redeemed within one year. Certificates totaling $1,300 were presented for redemption during 2018for meals having a total price of $2,100. The sales tax rate on restaurant sales is 4%, assessed at the time meals (notgift certificates) are purchased. Sales taxes will be remitted in January.Required:1. Prepare the appropriate journal entries (in summary form) for the gift certificates sold during 2018 (keepingin mind that, in actuality, each sale of a gift certificate or a meal would be recorded individually).2. Determine the liability for gift certificates to be reported on the December 31, 2018, balance sheet.3. What is the appropriate…arrow_forward
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- CircuitTown commenced a gift card program in January 2016 and sold $10,000 of gift cards in January, $15,000 in February, and $16,000 in March of 2016 before discontinuing further gift card sales. During 2016, gift card redemptions were $6,000 for the January gift cards sold, $4,500 for the February cards, and $4,000 for the March cards. CircuitTown considers gift cards to be “broken” (not redeemable) 10 months after sale. Required: 1. How much revenue will CircuitTown recognize with respect to January gift card sales during 2016? 2. Prepare journal entries to record the sale of January gift cards, redemption of gift cards (ignore sales tax), and breakage (expiration) of gift cards. 3. How much revenue will CircuitTown recognize with respect to March gift card sales during 2016? 4. What liability for deferred revenue associated with gift card sales would CircuitTown show as of December 31, 2016?arrow_forwardEarly in 2017, Nash Equipment Company sold 400 Rollomatics during 2017 at $6,100 each. During 2017, Nash spent $19,000 servicing the 2-year warranties that accompany the Rollomatic. All applicable transactions are on a cash basis. Prepare 2017 entries for Nash. Assume that Nash estimates the total cost of servicing the warranties will be $50,000 for 2 years. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)arrow_forwardIn Lizzie Shoes’ experience, gift cards that have not been redeemed within 12 months are not likely to beredeemed. Lizzie Shoes sold gift cards for $18,000 during August 2018. $4,000 of cards were redeemed inSeptember 2018, $3,000 in October, $2,500 in November, and $2,000 in December 2018. In 2019 an additional$1,000 of cards were redeemed in January and $500 in February. How much gift card revenue associated withthe August 2018 gift card sales would Lizzie get to recognize in 2018 and 2019?arrow_forward
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