The following data are taken from the comparative balance sheets of Cascade Billiards Club, which prepares its
Question:
The following data are taken from the comparative balance sheets of Cascade
Billiards Club, which prepares its financial statements using the accrual basis of accounting.
Members are billed based upon their use of the club’s facilities. Unearned service revenues arise from the sale of gift certificates, which members can apply to their future use of club facilities. The 2019 income statement for the club showed that service revenue of $161,000 was recorded during the year.
Instructions
(a) Prepare journal entries for each of the following events that took place during 2019.
(1) Accounts receivable from 2018 were all collected.
(2) Gift certificates outstanding at the end of 2018 were all redeemed.
(3) An additional $38,000 worth of gift certificates were sold during 2019. A portion of these was used by the recipients during the year; the remainder was still outstanding at the end of 2019.
(4) Services performed for members for 2019 were billed to members.
(5) Accounts receivable for 2019 (i.e., those billed in item [4] above) were partially collected.
(b) Determine the amount of cash received by the club, with respect to member services,
during 2019.
Step by Step Answer:
Lets break down the events and create the necessary journal entries a Journal Entries 1 Collection of Accounts Receivable from 2018 All the receivables from 2018 9000 were collected in 2019 The entry would be Debit Cash 9000 Credit Accounts Receivable 9000 2 Redemption of Gift Certificates from 2018 All the unredeemed gift certificates from the end of 2018 25000 were redeemed in 2019 The entry would be Debit Unearned Service Revenue 25000 Credit Service Revenue 25000 3 Sale and Redemption of Gift Certificates during 2019 Gift certificates worth 38000 were sold in 2019 We need to record the sale and the portion that was redeemed However we do not have the specific amount redeemed but we know some portion was used and the remaining is in the Unearned Service Revenue at the end of 2019 As the unredeemed balance went down from 25000 in 2018 to 17000 in 2019 it implies that 8000 of the gift certificates sold in 2019 38000 total sold 25000 17000 ending balance were unused by the end of the year Thus 30000 38000 total sold 8000 still unearned were redeemed and earned in 2019 For the sale Debit Cash 38000 Credit Unearned Service Revenue 38000 For the redemption of part of the sold amount Debit Unearned Service Revenue 30000 Credit Service Revenue 30000 4 Services Performed for Members for 2019 If the service revenue for the year was 161000 and we know that 55000 from the redemption of gift certificates from 2018 and 2019 then the remaining revenue earned by providing services would be 161000 55000 106000 This amount was billed to members so the journal entry would be Debit Accounts Receivable 106000 Credit Service Revenue 106000 5 Partial Collection of 2019 Accounts Receivable We do not have the exact amount collected for 2019 but we can calculate this later by analyzing the change in the accounts receivable ...View the full answer
Financial Accounting
ISBN: 9781119298229,9781119305842
10th Edition
Authors: Jerry J. Weygandt , Donald E. Kieso , Paul D. Kimmel
