Question

For each of the following independent situations, prepare journal entries to record the initial transaction on December 31 and the adjustment required on January 31. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

a.
Magnificent Magazines received $16,800 on December 31, 2015, for subscription services related to magazines that will be published and distributed in January through December 2016.

b.
Walker Window Washing paid $1,680 cash for supplies on December 31, 2015. As of January 31, 2016, $280 of these supplies had been used up.

c.
Indoor Raceway received $4,200 on December 31, 2015, from race participants for providing services for three races. One race is held in January 31, 2016, and the other two will be held in March 2016.

1. Record the receipt of $16,800 on December 31, 2015, for subscription services related to magazines that will be published and distributed from January through December 2016.

2. Record the January 31, 2016 adjusting entry for the December 31, 2015 receipt of $16,800 for magazine subscriptions to be published January through December 2016.

3. Record the payment of $1,680 cash for supplies by Walker Window Washing on December 31, 2015. As of January 31, 2016, $280 of these supplies had been used up.

4. Record the January 31, 2016 adjusting entry for the December 31, 2015 cash payment of $1,680 for supplies. As of January 31, 2016, $280 of these supplies had been used up.

5. Record the receipt by Indoor Raceway of $4,200 on December 31, 2015, from race participants for providing services for three races. One race is held on January 31, 2016, and the other two will be held in March 2016.

6. Record the January 31, 2016 adjusting entry for the December 31, 2015 receipt of $4,200 from race participants for providing services for three races. One race is held on January 31, 2016 and the other two will be held in March 2016.

Answer 1

Answer:

                            Journal Entries

a1)                                    Magnificent Magazines

Date                                 Details                                    Dr               Cr

                                                                                        $                $

December 31, 2015  Cash                                         16,800

                                 Deferred Revenue-subscription               16,800

Being recognition of prepaid subscription service for the year 2016

a2)                                  Magnificent Magazines

Date                                 Details                                     Dr               Cr

                                                                                          $                $

January 31, 2016     Deferred Revenue-subscription    1,400

                                Revenue                                                        1,400

Being revenue for the month of January 2016

b1)                                 Walker Window Washing

Date                                 Details                                    Dr                   Cr

                                                                                        $                     $

December 31, 2015     Prepaid expense-Supplies     1680

                                    Cash                                                              1680

Being recognition of advance payment for supplies

b2)                                 Walker Window Washing

Date                                 Details                                 Dr                   Cr

                                                                                     $                     $

January 31, 2016        Expense - supplies               280

                                   Prepaid expense-Supplies                           280

Being supply expense for the month of January

c1)                                 Indoor Raceway

Date                                 Details                                    Dr               Cr

                                                                                        $                $

December 31, 2015  Cash                                         4,200

                                  Deferred Revenue                                     4,200

Being recognition of race income paid in advance

c2)                                  Indoor Raceway

Date                                 Details                                     Dr               Cr

                                                                                          $                $

January 31, 2016     Deferred Revenue                        1,400

                                Revenue                                                        1,400

Being revenue for the month of January 2016

Explanation:

a) For Magnificent Magazines, the total amount paid $16800 is given as an advance for services not yet rendered. This amount which is for 12 months is then recognized as revenue when the services as provided on a monthly basis = 16800/12 = 1400

b) Walker windows paid in advance for supplies amounting to $1680, this is an asset to the company (prepayment) and as at January 2016, only $280 had been utilized. The utilized $280 is therefore expensed to the income statement

c) For Indoor Raceway, the $4200 is a liability as the services have not been provided yet, hence deferred revenue and the revenue is recognized after the service has been rendered in the income statement. For January, being 4200/3 = 1400