Question

Gomez Co. had the following transactions in the last two months of its year ended December 31st. Nov. 1st Paid $1,900 cash for future newspaper advertising. 1st Paid $2,460 cash for 12 months of insurance through October 31st of the next year. 30th Received $3,700 cash for future services to be provided to a customer. Dec. 1st Paid $6,000 cash for a consultant’s services to be received over the next three months. 15 Received $7,950 cash for future services to be provided to a customer. 31st Of the advertising paid for on November 1st, $1,500 worth is not yet used. 31st A portion of the insurance paid for on November 1st has expired. No adjustment was made in November to Prepaid Insurance. 31st Services worth $1,500 are not yet provided to the customer who paid on November 30. 31st One-third of the consulting services paid for on December 1st have been received. 31st The company has performed $3,400 of services that the customer paid for on December 15th.

Required 1. Prepare entries for these transactions under the method that records prepaid expenses as assets and records unearned revenues as liabilities. Also prepare adjusting entries at the end of the year.

2. Prepare entries for these transactions under the method that records prepaid expenses as expenses and records unearned revenues as revenues. Also prepare adjusting entries at the end of the year.

Answer 1

1)  Prepare entries for these transactions under the method that records prepaid expenses as assets and records unearned revenues as liabilities. Also prepare adjusting entries at the end of the year.

Date	Particular	Debit	Credit
Nov-1	Prepaid Advertising	$1,900
	Cash		$1,900
	( to record cash paid for prepaid advertising)
1	Prepaid Insurance	$2,460
	Cash		$2,460
	( to record cash paid for prepaid insurance)
30	Cash	$3,700
	Unearned service fee		$3,700
	( to record cash received for service to be provided)
Dec 1	Unearned expense	$6,000
	Cash		$6,000
	( to record cash paid for consultation to be received)
15	Cash	$7,950
	Unearned service fee		$7,950
	( to record cash received for service to be provided)
31	Advertising Expense	$400
	Prepaid expense		$400
	( to record expenses used)
31	Insurance expense	$410
	Prepaid insurance ( $2,460 * 2/12)		$410
31	Unearned service fee	$2,200
	Service fee earned ($3700 - $1500)		$2,200
	( to record service provided)
31	Consulting fee expense	$2,000
	Unearned expense( $6,000*1/3)		$2,000
	( to record consultation received)
31	Unearned service fees	$3,400
	Service fees earned		$3,400
	( to record service provided)

2) Prepare entries for these transactions under the method that records prepaid expenses as expenses and records unearned revenues as revenues. Also prepare adjusting entries at the end of the year.

Date	Particular	Debit	Credit
Nov 1	Advertising expanse	$1,900
	Cash		$1,900
1	Insurance expense	$2,460
	cash		$2,460
30	Cash	$3,700
	Service fees earned		$3,700
Dec 1	Consulting fees expense	$6,000
	Cash		$6,000
15	Cash	$7,950
	Service fees earned		$7,950
31	Prepaid advertising	$1,500
	Advertising Expense		$1,500
31	Prepaid insurance ($2,460*10/12)	$2,050
	Insurance expense		$2,050
31	Service fees earned ( $3,700 - $2,200)	$1,500
	Unearned service fees		$1,500
31	Unearned expense ($6,000*2/3)	$4,000
	Consulting fees expense		$4,000
31	Service fees earned	$4,550
	Unearned service fees		$4,550