Question

Action Quest Games Co. adjusts its accounts annually. The following information is available for the year ended December 31, 2020.

1.		Purchased a 1-year insurance policy on June 1 for $1,800 cash.
2.		Paid $6,500 on August 31 for 5 months’ rent in advance.
3.		On September 4, received $3,600 cash in advance from a company to sponsor a game each month for a total of 9 months for the most improved students at a local school.
4.		Signed a contract for cleaning services starting December 1 for $1,000 per month. Paid for the first 2 months on November 30. (Hint: Use the account Prepaid Cleaning to record prepayments.)
5.		On December 5, received $1,500 in advance from a gaming club. Determined that on December 31, $475 of these games had not yet been played.

Answer 1

Adjusting entry

No	General Journal	Debit	Credit
1	Insurance expense (1800/12*7)	1050
	Prepaid insurance		1050
2	Rent expense (6500/5*4)	5200
	Prepaid rent		5200
3	Unearned revenue (3600/9*4)	1600
	Revenue earned		1600
4	Cleaning expense	1000
	Prepaid cleaning		1000
5	Unearned revenue (1500-475)	1025
	Revenue earned		1025