Question

Horizon Inc. sells prepaid telephone cards to customers. Horizon then pays the telecommunications company, V-Mobile, for the actual use of its telephone lines related to the prepaid telephone cards. Assume that Horizon sells $6,000 of prepaid cards in January 2020. It then pays V-Mobile based on usage, which turns out to be 60% in February and 40% in March. The total payment by Horizon for V-Mobile lines over the 2 months is $4,000.

A. Prepare the journal entries necessary for January and February

B. Compute the revenue, costs and net income Horizon will report in January, February, and March

Answer 1

A.

	Account Titles	Debit	Credit
Jan	Cash	$                6,000
	Prepaid Cards		$               6,000
Feb	Prepaid Cards	$                3,600
	Revenue		$               3,600
	Expenses	$                2,400
	Cash		$               2,400

B.

	January	February	March
Revenue	$                      -	$               3,600	$              2,400
Expenses	$                      -	$               2,400	$              1,600
Net Income	$                      -	$               1,200	$                 800