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Adjusting Entries and Revenue Recording

Problem #1
The Ritz Manor is a popular seaside resort. A double room cost $220 for one night, in order to reserve a room, guests must pay one night's stay in advance. On each floor of the hotel, Vendalite Company operates vending machines with energy bars, juices, and other snacks for guests. Vendalite stocks the machines and collects revenue every week. Total average weekly revenue from these machines is $720. The Ritz Manor is entitled to 30% of the revenue from the machines. Vendalite sends a check to the Ritz Manor once at the end of each quarter for the resort's share of the revenue.
1. Based on this information, what type of adjusting entries does the Ritz Manor have?
2. How are the amounts of these adjustments determined?
3. Which accounts are affected?

Problems #2
Classify the following adjusting entries as involving prepaid expenses (PE), unearned revenues (UR),
accrued expenses (AE), or accrued revenues (AR).
a. To record revenue earned that was previously received as cash in advance.
b. To record annual depreciation expense.
c. To record wages expense incurred but not yet paid (nor recorded).
d. To record revenue earned but not yet billed (nor recorded).
e. To record expiration of prepaid insurance.

In its first year of operations, Harden Co. earned $39,000 in revenues and received $33,000 cash from
these customers. The company incurred expenses of $22,500 but had not paid $2,250 of them at yearend.
Harden also prepaid $3,750 cash for expenses that would be incurred the next year. Calculate
the first year's net income under both the cash basis and the accrual basis of accounting.

In the blank space beside each adjusting entry, enter the letter of the explanation A through F that
most closely describes the entry:
A. To record this period's depreciation expense.
B. To record accrued salaries expense.
C. To record this period's use of a prepaid
expense.
D. To record accrued interest revenue.
E. To record accrued interest expense.
F. To record the earning of previously unearned
income.
Homework Manager repeats all numerical Exercises on the book's Website with new numbers
each time they are worked. It can be used in practice, homework, or exam mode.
______ 1. Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,280
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,280
______ 2. Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,208
Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,208
______ 3. Insurance Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,180
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,180
______ 4. Unearned Professional Fees . . . . . . . . . . . . . . . . . . . . . 19,250
Professional Fees Earned . . . . . . . . . . . . . . . . . . . . . . 19,250
______ 5. Interest Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,300
Interest Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,300
______ 6. Depreciation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . 38,217
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . 38,217

During the year, Lola Co. recorded prepayments of expenses in asset accounts, and cash receipts of
unearned revenues in liability accounts. At the end of its annual accounting period, the company must
make three adjusting entries: (1) accrue salaries expense, (2) adjust the Unearned Services Revenue
account to recognize earned revenue, and (3) record services revenue earned for which cash will be
received the following period. For each of these adjusting entries (1), (2), and (3), indicate the account
from a through g to be debited and the account to be credited.
a. Accounts Receivable e. Unearned Services Revenue
b. Prepaid Salaries f. Salaries Expense
c. Cash g. Services Revenue
d. Salaries Payable

I am having a problem understanding what processes I should be using.

Solution Summary

This solution addresses the multiple questions and explains the concepts of adjusting entries, accounts affected, prepaid expenses, unearned revenues, net income, cash basis, and accrual basis.

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