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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.

Answer :

Answer:

Explanation:

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

The journal entries are:

1.

Insurance expenses 840 (($1,140 ÷ 12) ×7)

      To Prepaid insurance 840

2.

Rent expenses 4640 (($5,800 ÷ 5) × 4)

            Prepaid rent 4640

3.

Revenue 1880 ((4,230 ÷ 9) × 4)

         unearned revenue 1880

4.

Debit cleaning service 950

         prepaid cleaning service 950

5.

Revenue 1050 (1,400 - 350)

       unearned revenue 1050

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