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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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Refundable Deposits Party Warehouse Inc. rents a wide variety of products (e.g., tables, chairs, tents) for special events. Upon rental, Party Warehouse requires a deposit which is forfeited if the equipment is not returned at the end of the rental period. Deposits charged are twice the cost of the equipment, and Party Warehouse keeps the equipment in its accounting records until deposits are forfeited. On April 5, a customer rented various products for an event to be held on April 8, and Party Warehouse collected a $10,000 deposit. The products were returned on April 10.

Required:

  1. 1. Prepare the entries to record the receipt of the deposit and refund of the deposit at the end of the rental period.
  2. 2. Assume that the customer only returns 90% of the equipment on April 10. Prepare the entries to record the forfeiture of the deposit.

1.

To determine

Prepare the journal entries to record the receipt of the deposit and the refund of deposit at the end of the period in the books of Incorporation PW.

Explanation

Refundable Deposit:

Refundable deposits are the deposits made by the employees and the customers to the companies as a guarantee for covering the asset used by the customer, to cover the payments that might arise in the future period or to guarantee performance of a service or contract.

Prepare the journal entry to record the receipt of the deposit:

DateAccount Titles and ExplanationsDebit ($)Credit ($)
April 5Cash10,000 
     Deposit from customer 10,000
 (To record the collection of cash deposit)  

Table (1)

  • Cash is an asset account and it is increased. Thus, debit cash with $10,000...

2.

To determine

Prepare the journal entries to record the forfeiture of deposit.

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