Understanding the alternative treatment of prepaid expenses and unearned revenues Rapid Way Pack’n Mail completed the following transactions during 2018: Requirements Journalize the transactions...

Understanding the alternative treatment of prepaid expenses and unearned revenues

Rapid Way Pack’n Mail completed the following transactions during 2018:

Requirements

1. Journalize the transactions assuming that Rapid Way debits an asset account for prepaid expenses and credits a liability account for unearned revenues.


2. Journalize the related adjusting entries at December 31, 2018.


3. Post the journal and adjusting entries to the T-accounts, and show their balances at December 31, 2018. (Ignore the Cash account.)


4. Repeat Requirements 1-3. This time, debit an expense account for prepaid expenses and credit a revenue account for unearned revenues.


5. Compare the account balances in Requirements 3 and 4. They should be equal.

Extracted text: Nov. 1 Paid $9,600 store rent covering the six-month period ending April 30, 2019. Nov. 1 Paid $6,000 insurance covering the five-month period ending March 31, 2019. Dec. 1 Collected $9,000 cash in advance from customers. The service revenue will be earned $1,800 monthly over the five-month period ending April 30, 2019. Dec. 1 Collected $7,200 cash in advance from customers. The service revenue will be earned $2,400 monthly over the three-month period ending February 28, 2019.