Question

Question 4

(30 marks)

Golden Designs incurred the following 2018 transactions:

• November 01: Paid $ 60,000 to place an ad for 4 months on the internet.
• December 01: Received $ 100,000 cash payment to produce a monthly coin for the next 5 months.

Required:

1. Open T-accounts for Prepaid Advertising, Advertising Expense, Unearned Revenue, and Revenue.
2. Prepare a journal entry that would debit an asset account, Prepaid Advertising. Prepare a journal entry that would credit a liability account, Unearned Revenue. No explanations are needed.
3. Prepare journal entries to record the December 31, 2018 adjustments.
4. Post the journal entries to the T-accounts. No posting references are needed. Show the December 31, 2018 balances on the T-accounts.
5. Repeat requirements A through D above. This time, instead of debiting Prepaid Advertising, debit Advertising Expense. This time, instead of crediting Unearned Revenue, credit Revenue.
6. By comparing the balances in requirements D and E, what did you notice?

Answer 1

Journal Entries

	Account	Credit	Debit
Nov 1	Prepaid advertising	$   60,000
	Cash		$   60,000
Dec 1	Cash	$ 100,000
	Unearned revenue		$ 100,000
Dec 31	Advertising expense	$   30,000
	Prepaid advertising		$   30,000
Dec 31	Unearned Revenue	$   20,000
	Revenue		$   20,000

T Accounts

Prepaid Advertising
Date	Particular	Amount	Date	Particular	Amount
Nov 1	Cash	$   60,000	Dec 31	Advertising expense	$ 30,000
			Dec 31	Cl Balance	$ 30,000
		$   60,000			$ 60,000
Advertising Expense
Date	Particular	Amount	Date	Particular	Amount
Dec 31	Prepaid advertising	$   30,000
Cash
Date	Particular	Amount	Date	Particular	Amount
Dec 1	Unearned revenue	$ 100,000	Nov 1	Prepaid advertising	$ 60,000

Unearned Revenue
Date	Particular	Amount	Date	Particular	Amount
Dec 31	Revenue	$       20,000	Dec 1	Cash	$ 100,000
Dec 31	Cl balance	$       80,000
		$     100,000			$ 100,000
Revenue
Date	Particular	Amount	Date	Particular	Amount
			Dec 31	Revenue	$   20,000

E

Journal

	Account	Credit	Debit
Nov 1	Advertising Expense	$   60,000
	Cash		$   60,000
Dec 1	Cash	$ 100,000
	Revenue		$ 100,000

T Accounts

Advertising Expense

Revenue

Date

Particular

Amount

Date

Particular

Amount

Date

Particular

Amount

Date

Particular

Amount

Nov 1

Cash

$   60,000

Dec 1

Cash

$ 100,000

Cash

Date

Particular

Amount

Date

Particular

Amount

Dec 1

Revenue

$ 100,000

Nov 1

Advertising expense

$ 60,000

We see the total expense in this year is much more than it was in requirement D. There is no Prepaid balance or Unearned balance.