Question

during the month of september, the texas go - kart company had the following business activities:
a. on september 1, prepaid rent on the track facility for six months at a total cost of $7,200.
b on september 1, received $45,600 in advance for season tickets for 12 - month admission to the race track.
c. on september 1, booked the race track for a private organization that will use the track one day per month for $1,700 each time, to be paid in the following month. the organization uses the track once during the month, on september 30.
d. on september 1, hired a new manager at a monthly salary of $2,300, to be paid the first monday following the end of the month.
required:

1. prepare the journal entry, if any, required to record each of the initial business activities on september 1.
2. prepare the adjusting journal entries, if any, required on september 30.

Explanation:

Step1: Record initial business activities on September 1

a. Prepaid rent

Debit Prepaid Rent $7,200; Credit Cash $7,200.

b. Advance for season - tickets

Debit Cash $45,600; Credit Unearned Revenue $45,600.

c. Booking for private organization (no cash received yet, no entry on Sept 1)

No entry.

d. Hiring manager (no payment made yet, no entry on Sept 1)

No entry.

Step2: Prepare adjusting journal entries on September 30

a. Rent adjustment

The monthly rent expense is $\frac{7200}{6}=1200$.
Debit Rent Expense $1,200; Credit Prepaid Rent $1,200.

b. Season - ticket revenue recognition

The monthly revenue from season - tickets is $\frac{45600}{12}=3800$.
Debit Unearned Revenue $3,800; Credit Ticket Revenue $3,800.

c. Revenue from private organization

Debit Accounts Receivable $1,700; Credit Service Revenue $1,700.

d. Accrued salary for manager

Debit Salaries Expense $2,300; Credit Salaries Payable $2,300.

Answer:

1.

Transaction	Journal Entry on September 1
b.	Debit: Cash $45,600 Credit: Unearned Revenue $45,600
c.	No entry
d.	No entry

2.

Transaction	Journal Entry on September 30
b.	Debit: Unearned Revenue $3,800 Credit: Ticket Revenue $3,800
c.	Debit: Accounts Receivable $1,700 Credit: Service Revenue $1,700
d.	Debit: Salaries Expense $2,300 Credit: Salaries Payable $2,300