Preparing Adjusting Entries to Convert an Asset to an Expense and to Convert a Liability to Revenue L04-1, L04-2, L04-3, L04-4, L04-5, LO4-6, L04-7 EXERCISE 4.5 Preparing Adjusting Entries to Accrue Revenue and Expenses for Which No Cash Has Been Received LO4-1, L04-2, L04-4 EXERCISE 4.6 Deferred Revenue . unearned revenue and are recorded as Customer Deposits as cash is received. Deposited amounts are later converted to Cruise Revenue as voyages are completed. a. Where in its financial statements does Carnival Corporation & PLC report Prepaid Advertis ing? Where in its financial statements does it report Customer Deposits b. Prepare the adjusting entry necessary when brochures costing $3.5 million are mailed c. In its most recent annual report, Carnival Corporation & PLC reported Customer Deposits of $4.0 billion. Prepare the adjusting entry necessary in the following year as $60 million of this amount is earned. d. Consider the entire adjusting process at Carnival Corporation & PLC. Which adjusting entry do you think results in the most significant expense reported in the company's income statement? The geological consulting firm of Gilbert, Marsh, & Kester prepares adjusting entries on a monthly basis. Among the items requiring adjustment on December 31, year 2, are the following. The company has outstanding a $50,000, 9 percent, 2-year note payable issued on July 1. year 1. Payment of the $50,000 note, plus all accrued interest for the 2-year loan period, is due in full on June 30, year 3. 2. The firm is providing consulting services to Texas Oil Company at an agreed-upon rate of $1,000 per day. At December 31, 10 days of unbilled consulting services have been provided. a. Prepare the two adjusting entries required on December 31 to record the accrued interest expense and the accrued consulting revenue earned. b. Assume that the $50,000 note payable plus all accrued interest are paid in full on June 30, year 3. What portion of the total interest expense associated with this note will be reported in the firm's year 3 income statement? C Assume that on January 30, year 3, Gilbert, Marsh, & Kester receive $25,000 from Texas Oil Company in full payment of the consulting services provided in December and January. What portion of this amount constitutes revenue earned in January? When Delta Airlines sells tickets for future flights, it debits Cash and credits an account entitled Air Traffic Liability (Passenger Revenue Earned is recorded only when passengers are provided flight services). The Air Traffic Liability account, reported recently at approximately $4.9 billion, is among the largest liabilities appearing in the company's balance sheet. a. Explain why this liability is often referred to as a deferred revenue account. b. What activity normally reduces this liability? Can you think of any other transaction that would also reduce this account? e. Assume that, on a recent flight, passengers of the airline used tickets that they had purchased in advance for $90,000. Record the entry Delta Airlines would make upon completion of this