Question

On 11/1/20 the Gamma Company enters into a contract with a local electricity provider. The annual charge for the electricity is $18,000, to be paid by Gamma to the provider in semiannual installments at the end of every 6 month period. Which of the following statements are true about the journal entries recorded by the two companies? (select all that apply - i.e. just one or as many as all of them) On 12/31/20, both the Gamma Company and the electricity provider debit a balance sheet account for $3,000 On 12/31/20 the electricity provider debits an income statement account for $3,000 On 12/31/20, the electricity provider debits Cash for $3,000 On 4/30/21, the Gamma Company credits Cash for $6,000 On 4/30/21, the Gamma Company credits Cash for $9,000

Answer 1

Answer:-

> On 4/30/21, the Gamma Company Credits Cash for $9000

.

This statement is only the correct one that include in the option. All other are wrong statement.

The actual entry like this

After 6 moth, on 4/30/21, the first installment date, The Gamma need to pay $9000 cash. Cash is an assets, if assets decrease should credit.

Debit Electricity charge Payable…..$9000

Credit Cash…………………………….…… $9000

All others are wrong because,

On 12/31/2020, the Gamma company debit a income statement account, which is electricity charge as expenses and credit with balance sheet account, which is Electricity charge Payable. And the electricity provider debit a balance sheet account, which is Accounts receivable- Gamma company and credit a income statement account, which is Revenue.

Only after 6 month the gamma company paid cash to electricity provider.

On 4/30/2021, the electricity provider debit cash and credit Accounts receivable- Gamma company.

* Only one statement is actually correct.