Problem 3-6B Recording prepaid expenses and unearned expenses:

Tremor Co had the following transactions in the last two months of its fiscal year ended May 31.

April 1. Paid $2450 cash to an accounting firm for future consulting services.

April 1. Paid $3600 cash for 12 months of insurance through March 31st of the next year.

April 30. Received $8500 cash for future services to be provided to a customer.

May 1 Paid $4450 cash for future newspaper advertising

May 23 Received $10450 cash for future services to be provided to a customer

May 31 Of the consulting services paid for on April 1, $2000 worth has been performed

May 31 A portion of the insurance paid for on April 1st has expired. No adjustment was made in April to Prepaid Insurance

May 31 Services worth $4600 are not yet provided to the customer who paid on April 30th

May 31 Of the advertising paid for on May 1 $2,500 worth is not yet used

May 31 The company has performed $5500 of services that the customer paid for on May 23

Required:

1) prepare entries for these transactions under the method that records prepaid expenses and unearned revenues in balance sheet accounts, Also prepare adjusting entries at the end of the year

2) Prepare entries for these transactions under the method that records prepaid expenses and unearned revenues in income statement accounts. Also prepare adjusting entries at the end of the year.

Analysis component

3) Explain why the alternative sets of entries in parts 1 and 2 do not result in different financial statement accounts.