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In: Accounting

For each of the following transactions determine how the accounts and amounts would be reported and...

For each of the following transactions determine how the accounts and amounts would be reported and on which financial statements.

1. Petty Corp. purchased guitar amplifiers to be used for concert performances. The total cost was $50,000, and the company expected to depreciate them over five years, using the straight-line method. They were purchased on July 1, 2017, and the company’s fiscal year ends December 31. What adjusting journal entry must be made at year-end? What is the impact on the 2017 financial statements?

2. Cage the Elephant, Inc., announced a 2017-2018 concert tour. All tickets went on sale on Sept. 30, 2017. The total amount of tickets sold was $30,000,000 ($30 million). The tour was for 15 performances. Five of the performances took place in December, 2017, with the rest scheduled for January 2018. (Amazingly, the exact same number of tickets was sold for each show!) The company’s fiscal year ends December 31. What adjusting journal entry must be made at year-end? What is the impact on the 2017 financial statements?

Solutions

Expert Solution

1) The Asset is purchased on the part way(6years reamaining) of the accounting year, So we just have to apportionate depreciation.

Journal to Record Purchase on 1,July,2017

Debit

Credit
Equipment 50,000
Cash

50,000

For increase in Asset "Debit: and Decrease of Asset "Credit" . Here Equipment Increases and Cash decreases

To record Depreciation

Debit

Credit
Deprecition (w1) 5,000
Accumulated Depreciation

5,000

w1)Depreciation

= =10,000 Per year.

But Here only covers 6Months in first year so, =10,000 *=5,000

2) Five Out of 15 are claimed in this year itself so to recognise it and remaining 10 to be considered as advance payment received.

=10,000,000

Debit

Credit
Sales Revenue 10,000,000
Cash

10,000,000

Rest 20,000,000 will be accounted as an asset in "Prepayment Received"

Debit

Credit
Prepayment Receied 20,000,000
Cash

20,000,000

This is How to deal with Prepayment only recognise revenue when Product or service is delivered

ekkarill92 answered 2 years ago
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