For each of the following economic events indicate the effect that not recording the necessary adjusting entry at year-end would have on the financial statements.

Indicate whether not recording the required adjusting entry would result in:

(i) an overstatement of assets, liabilities, owners’ equity, or net income,

(ii) an understatement of assets, liabilities, owners’ equity, or net income, or

(iii) no effect on assets, liabilities, owners’ equity, or net income.

Provide explanations for your conclusions and state any assumptions you make. Assume a December 31 year-end. To respond it’s necessary to determine the required journal entry.

a. A theatre production company sells season tickets to subscribers in advance of the theatre season. Subscribers receive a discount for paying in advance. The production company recognizes revenue when a show is performed. (Respond from the perspective of the production company.)

b. A customer made a $5,000 down payment last year for services that were provided in May of the current year. (Respond from the perspective of the customer.)

c. A retail store pays a percentage of its sales as rent to the property owner. The payment is made three months after its year-end, after the financial statements are released. (Respond from the property owner’s perspective.)

d. A retail store pays a percentage of its sales as rent to the property owner. The payment is made three months after its year-end, when the financial statements are released. (Respond from the retail store’s perspective.)