Question

Squeaky Shine provides car washing services in Jersey City, New Jersey. A three-month pass for automatic car wash sells for $60, which entitles the customer for an unlimited number of car washes during the contract period. Squeaky Shine estimates that pass holders wash their cars equally throughout the three-month period. On December 1st, customers purchased $1,260 of the three-month passes, with purchases of the passes occurring evenly throughout December. Required: 1. Prepare the journal entries that Squeaky Shine would record on December 1 and on December 31, 2016, with respect to this transaction. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.) 2. State the account titles and amounts that will be included in Squeaky Shine’s 2016 income statement and balance sheet.

Answer 1

Answer:

Explanation:

1. The journal entries are shown below:

On December 1

Cash A/c Dr $1,260

     To  Deferred Service Revenue $1,260

(Being cash is received)

On December 31, 2016

Deferred Service Revenue $420                 ($1,260 ÷ 3 months)

      To Service revenue                    $420

(Being service revenue is recorded)

2. Income statement

Earned income from car washing services    $420

Balance sheet

Assets

Cash              $1,260

Liabilities

Deferred Service Revenue       $840        ($1,260 - $420)