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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