Question

Party warehouse Inc. rents a wide variety of products (e.g. tables, chairs, tents and storage containers) for special events. Upon rental, party warehouse requires a deposit which is forfeited if equipment is not returned at the end of the rental period. Deposit charged or twice the cost of the equipment, and party warehouse keeps equipment and it’s accounting records until deposits are forfeited. On April 5, a customer rented various containers for an event to be held on April 8, and party warehouse collected a $15,000 deposit. The containers or return on April 10.

Required:

1. Prepare the entries to record the receipt of the deposit and refund of the deposit at the end of the rental period.

2. Assume that the customer only returns 80% of the containers on April 10. Prepare the entries to record the forfeiture of the deposit.

Journal entry

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Assume that the customer only returns 80% of equipment on April 10. Prepare the entries to record:

1. The forfeiture of 20% of the original deposit. Assume that the refund of 80% of the original deposit has already been recorded.

2. The cost of the containers that were not returned

Journal entry

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Answer 1

1.

a. To record deposit received against equipment rental
Date	Account Title	Debit	Credit
April.5	Cash	15000
	Deposit against equipment rental		15000
b. To record refund of deposit on return of equipment
Date	Account Title	Debit	Credit
April.10	Deposit against equipment rental	15000
	Cash		15000

2.

a. To record deposit received against equipment rental
Date	Account Title	Debit	Credit
April.5	Cash	15000
	Deposit against equipment rental		15000
b. To record refund of 80% of deposit on short return of equipment
Date	Account Title	Debit	Credit
April.10	Deposit against equipment rental	15000
	Deposit forfeited		3000
	Cash		12000
c. To record adjustment of forfeited deposit against equipment
Date	Account Title	Debit	Credit
April.10	Deposit forfeited	15000
	Equipment		1500
	Gain on forfeiture of deposit		1500
The deposit forfeited is $1,000. This means that the cost of the equipment
Cost is $1500. Hence there is a gain of $1500 on forfeiture of the deposit.

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