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1 August, 00:06

Action Quest Games Inc. adjusts its accounts annually. The following information is available for the year ended December 31, 2017.

1. Purchased a 1-year insurance policy on June 1 for $1,440 cash.

2. Paid $5,800 on August 31 for 5 months rent in advance.

3. On September 4, received $4,230 cash in advance from a corporation 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 $950 per month. Paid for the first 2 months on November 30.

5. On December 5, received $1,400 in advance from a gaming club. Determined that on December 31, $350 of these games had not yet been played.

For each of the above transactions, prepare the adjusting journal entry that is required on December 31.

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  1. 1 August, 01:50
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    1. Monthly insurance = (1140/12) = 120

    Insurance expenses = 120 * 7 = 840

    Debit insurance expenses 840, Credit prepaid insurance 840

    2. Rent in advance for 5 months = 5800

    Monthly rent = 5800/5 = 1160

    Rent for 4 months till December 31 = 1160*4 = 4640

    Debit rent expenses 4640, Credit Prepaid rent 4640

    3. Unearned revenue for 9 months = 4230

    Monthly revenue = 470

    Revenue earned = 470*4 = 1880

    Debit revenue 1880, credit unearned revenue 1880

    4. Prepaid cleaning expense 950 * 2 = 1900

    Debit cleaning service 950, credit prepaid cleaning service 950

    5. Unearned cash revenue = 1400

    cash revenue earned = 1400-350 = 1050

    Debit revenue 1050, credit unearned revenue 1050
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