ACC 225 WEEK 3 DQ 2 - they would debit cash for the $220...

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Week 3 Discussion Question 2 · Due Date: Day 4 [Main] forum · Post your response to the following: The Ritz Manor is a popular seaside resort. A double room costs $220 for one night. In order to reserve a room, guests must pay one night’s stay in advance. On each floor of the hotel, Vendalite Company operates vending machines with energy bars, juices, and other snacks for guests. Vendalite stocks the machines and collects revenue every week. Total average weekly revenue from these machines is $720. The Ritz Manor is entitled to 30% of the revenue from the machines. Vendalite sends a check to the Ritz Manor once at the end of each quarter for the resort’s share of the revenue. o Based on this information, what type of adjusting entries does the Ritz Manor have? o How are the amounts of these adjustments determined? o Which accounts are affected?
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For the prepay on the room, the Ritz Manor would have to record an adjusting entry to accrue the liability that they incur as they have not provided the required service (the room). Accordingly,
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Unformatted text preview: they would debit cash for the $220 and credit deferred revenue for $220. When the reservation is used, they would debit deferred revenue and credit revenue for the $220. On the vending machine (this would also be an adjustment required for accrual basis accounting), you would assume that there would be 13 weeks in each quarter. You would have to accrue an amount at the end of each month until it is paid quarterly. For example, for the month ended January 31, 20XX, you'd take $720 times the four weeks in January which equals $2,880. Ritz is entitled to 30% or $864. At the end of January, they would debit Vending machine receivable (or some account to that affect) and credit other revenue for the $864. This same type entry would be made each month until it is finally received. Then, you would debit cash and credit the receivable....
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This note was uploaded on 10/17/2011 for the course ACC 225 acc 225 taught by Professor Unknown during the Spring '10 term at University of Phoenix.

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ACC 225 WEEK 3 DQ 2 - they would debit cash for the $220...

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