Book 2 - Chapter 5

Multiple Choice
1.	b To record the supplies used up.
2.	d To record the amount of revenue earned as time passes.
3.	d
4.	d Debit an expense, credit Prepaid Expense.
5.	b Because the asset Prepaid Expense should have been reduced. Also, Insurance Expense should have been increased, so expenses are too low, which overstates net income.
6.	a Because the liability Unearned Revenue should have been reduced. Also, revenue should have been increased, so revenue is too low, which understates net income.
7.	d
8.	c

Reinforcement Problems

5-1.

Information Example

  The key
  information
  type is . . .

  and to determine the total
  revenue earned to
  decrease the liability . . .

1. On April 1, Adirondack Rental Company received
     $1,750 for five months of equipment rental. The
     June 30 trial balance shows a balance of $1,750 in
     the Unearned Rent Revenue account.

the unearned
revenue per unit,

	calculate the unearned revenue per unit (per month)
	multiply by the number of units provided

2. The trial balance of Manhattan Company shows the
     balance in the Unearned Sales account as $4,040.
     A review of sales invoices shows that 75% of these
     orders was shipped.

the unearned
revenue that
was earned,

use percent given to
determine the portion earned

3. On October 1, Erie Insurance, Inc. received a $9,000
     payment for a 12-month insurance policy. The
     year-end trial balance on January 31 shows $9,000
     of Unearned Revenue.

the unearned
revenue per unit,

	calculate the unearned revenue per unit (per month)
	multiply by the number of units provided

4. The ledger of La Guardia Enterprises showed
     $25,000 of Unearned Service Revenue as a beginning
     balance. This is a balance from the prior year for six
     months of services. During this year, La Guardia
     received $52,000 of advance payments and earned
     $40,000 of them.

the unearned
revenue that
was earned,

	$25,000 beginning balance fully earned in the current period
	$40,000 earned from current receipts

5. The Nassau Company sells computer service
     contracts. Each $1,500 contract is good for 10
     service repairs calls. All contracts sold are recorded
     as Unearned Revenue. During the quarter ended
     September 30, Nassau Company made 710 service
     calls.

the unearned
revenue per unit,

	calculate the unearned revenue per unit (per service call)
	multiply by the number of units provided

Learning Goal 5

SOLUTIONS

Learning Goal 5: Prepare Adjusting Entries for Unearned Revenues

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