Part 1: Fluffer Company incurred the following costs.
1. Sales tax on factory machinery purchased, $7,000.
2. Painting of and lettering on truck immediately upon purchase, $800.
3. Installation and testing of factory machinery, $2,500.
4. Real estate broker's commission on land purchased $4,500.
5. Insurance premium paid for first year's insurance on new truck $930.
6. Cost of landscaping on property purchased, $9,200.
7. Cost of paving parking lot for new building, $18,700.
8. Cost of clearing, draining, and filling land, $14,400.
9. Architect's fees on self-constructed building, $11,000.
Instructions:
a) Indicate to which account Trudy would debit each of the costs.
b) Explain why item 1 is not debited to an expense account.
c) Explain why items 7 and 8 are debited to different accounts.
Part 2: Princess Company publishes a monthly fashion magazine, Tiara. Subscriptions to the magazine cost $30 per year. During October 2014, Princess sells 12,000 subscriptions beginning with the November issue. Princess prepares financial statements quarterly and recognizes subscription revenue earned at the end of the quarter. The company uses the accounts Unearned Subscription Revenue and Subscription Revenue.
Instructions:
(a) Prepare the entry in October for the receipt of the subscriptions.
(b) Prepare the adjusting entry at December 31, 2014, to record sales revenue recognized in December 2014.
(c) Indicate the effect that the transactions in (a) and (b) have on assets, liabilities, and stockholders' equity.
(d) Prepare the adjusting entry at March 31, 2015, to record sales revenue recognized in the first quarter of 2015.
(e) Indicate how the unearned subscription revenue is reported in the 3/31/15 financial statements, including the amount.