Short Cut: using the above unadjusted account balances, Flash has net income for the twelve months ended at 12/31/2019 of $58,595. Please consider the following 4 scenarios: (1) Flash requires new customers to pay in advance for services and at the time the cash is collected, and recorded Flash also increases the New Customer Advance account (a/c #13 above). During 2019, Flash collected advance payments from new customers totaling $9,000 and performed $5,000 of services (related to these customer prepayments). Flash anticipates providing the remaining $4,000 of services in early 2020. (2) Regarding $9,745 of advance payments for insurance coverage: (1) $7,785 was paid in late 2018 for an 18-month general business insurance policy effective January 1, 2019 and (ii) $1,960 was paid in August 2019 for a seven-month automobile insurance policy effective Sept. 1, 2019. (3) Regarding $17,800 of advance payments for advertising: (i) $4,050 for a billboard with a 9-month contract (July 1, 2019- March 31, 2020) and (ii) $13,750 for 55, 30-second radio ads on the local radio station. As of 12/31/2019, 28 of the radio ads had been broadcast while 27 were scheduled to play in 2020. (4) On January 2, 2020 Flash paid the company's landlord, LMN Rentals $3,000 for the December rent. Required: In class we classified adjusting journal entries in to categories or types. Consider the adjusting entries resulting from the 4 scenarios listed above and select the answer below that shows the number of entries that would be considered an adjustment of an existing deferred revenue or an adjustment of a deferred expense. A. O B. 3 C.2 D.4 O E. 1 Facts: Flash Enterprises provides you with the below unadjusted account balances as of 12/31/2019, all of which are normal: Ref. No 1 2 3 4 5 Ref. No 17 18 19 20 21 6 22 7 8 9 Account Description $ Cash $26,045 Accounts Receivable 16,000 Employee Note Receivable 7,000 Supplies 2,400 Prepaid Advertising Expense 17.800 Prepaid Insurance Expense 9,745 Vehicle 55,000 Equipment 125,000 Accumulated Depreciation 82,995 Accounts Payable- Gordon Industries 4,400 Dividend Payable 9,000 Interest Payable 0 New Customer Advance 9,000 Rent Payable 0 Salaries Payable 0 Utilities Payable 0 23 24 Account Description $ Note Payable $65,000 Contributed Capital 50,000 Retained Earnings 12,000 Dividends 32,000 Service Fee Revenue 240,000 Gain on asset disposal 5,115 Advertising Expense 34,000 Depreciation Expense 0 Insurance Expense 2,240 Interest Income Interest Expense 0 Miscellaneous Expense 965 Rent Expense 28,500 Salaries Expense 92,000 Supplies Expense 24,000 Utilities Expense 4,950 25 10 26 135 11 27 28 12 13 29 30 14 15 16 31 32
