Answer:
Date Particulars Debit Credit
Deferred Service Revenue A/c $4,000
To Revenue A/c $4,000
(Being Revenue recognized)
Advertisement Expense A/c $2,600
To Prepaid Advertisement A/c $2,
600
(Being expense recognized)
Employees Salaries A/c $16,000
To Outstanding Employees Salaries A/c $16,000
(Being expense & liability recorded)
Interest expense A/c $1,600
To Interest Liability A/c $1,600
(Being Interest expense & Liability for the
month September to December recorded)
Assumptions & Working notes:-
i) Since service is performed in the same financial year revenue is transferred from deferred revenue account to revenue account.
ii) Since 20 advertisements shown in the month of December only so expense related to those 20 is recognized in the month of December and remaining in the month of January.
$5,200/40*20 = $2,600
iii) Since salaries are paid in month of January but this is the expense for the month of December we recorded above entry.
iv) Interest Expense for months September to December is recorded and corresponding liability is created.
($60,000 * 8%) / 12 * 4 = $ 1,600
