Question

Required information For each of the following transactions for the Sky Blue Corporation: a. Collected $3,750 rent for the period October 1 to December 31, which was credited to Deferred Revenue on October 1. b. Paid $2,280 for a two-year insurance premium on October 1 and debited Prepaid Insurance for that amount. c. Used a machine purchased on October 1 for $53,400. The company estimates annual depreciation of $5,340. Prepare the adjusting journal entries required on October 31. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) View transaction list Journal entry worksheet < 1 2 3 > Record the rent revenue earned during October. Note: Enter debits before credits. Transaction General Journal Debit Credit a.

Answer 1

Credit Date 31-Oct Debit 1,250 $ Account titles Deferred revenue Rent revenue (to record rent earned) $ 1,250 31-Oct $ 95 Insurance expense Prepaid insurance (to record prepaid insurance expired) $ 95 31-Oct $ 445 Depreciation expense Accumulated depreciation (to record depreciation for the month) $ 445

• Deferred revenue is cash collected in advance from the customers for services yet to be provided. It is a liability. When the services are actually provided, the revenue is recognized.
  • $3,750 is collected for 3 months; October, November & December. Revenue for the month of October has to be recorded. $3,750 ÷ 3 = $1,250
  • A decrease in liability - 'Deferred revenue' is debited; An increase in revenue is credited.
• Prepaid insurance is written off as an insurance expense when the period expires.
  • Total insurance premia paid = $2,280
  • Total period covered = 2 years = 24 months.
  • Insurance expense for a month = $2,280 ÷ 24 months = $95
  • Insurance expense for one month - October has to be recorded.
  • An increase in expense - insurance expense is debited.
  • A decrease in asset - prepaid insurance is credited.
• Annual depreciation = $5,340. Depreciation for a month = $5,340 ÷ 12 months = $445