Question

In: Accounting

Party warehouse Inc. rents a wide variety of products (e.g. tables, chairs, tents and storage containers)...

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
1
2
3
4

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
1
2
3
4

Solutions

Expert Solution

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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