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 the equipment is not returned at the end of the rental period. Deposits charged are twice the cost of the equipment, and Party Warehouse keeps the equipment in its 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 $10,000 deposit. The containers were returned 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 90% of the containers on April 10. Prepare the entries to record the forfeiture of the deposit.

Answer 1

1.

a. To record deposit received against equipment rental
Date	Account Title	Debit	Credit
April.5	Cash	10000
	Deposit against equipment rental		10000
b. To record refund of deposit on return of equipment
Date	Account Title	Debit	Credit
April.10	Deposit against equipment rental	10000
	Cash		10000

2.

a. To record deposit received against equipment rental
Date	Account Title	Debit	Credit
April.5	Cash	10000
	Deposit against equipment rental		10000
b. To record refund of 90% of deposit on short return of equipment
Date	Account Title	Debit	Credit
April.10	Deposit against equipment rental	10000
	Deposit forfeited		1000
	Cash		9000
c. To record adjustment of forfeited deposit aganist equipement
Date	Account Title	Debit	Credit
April.10	Deposit forfeited	10000
	Equipment		500
	Gain on forfeiture of deposit		500
The deposit forfeited is $1,000. This means that the cost of the equipment
lost is $500. Hence there is a gain of $500 on forfeiture of the deposit.