Question 4

(30 marks)

Golden Designs incurred the following 2018 transactions:

• November 01: Paid $ 60,000 to place an ad for 4 months on the internet.
• December 01: Received $ 100,000 cash payment to produce a monthly coin for the next 5 months.

Required:

1. Open T-accounts for Prepaid Advertising, Advertising Expense, Unearned Revenue, and Revenue.
2. Prepare a journal entry that would debit an asset account, Prepaid Advertising. Prepare a journal entry that would credit a liability account, Unearned Revenue. No explanations are needed.
3. Prepare journal entries to record the December 31, 2018 adjustments.
4. Post the journal entries to the T-accounts. No posting references are needed. Show the December 31, 2018 balances on the T-accounts.
5. Repeat requirements A through D above. This time, instead of debiting Prepaid Advertising, debit Advertising Expense. This time, instead of crediting Unearned Revenue, credit Revenue.
6. By comparing the balances in requirements D and E, what did you notice?