Question: Tremor Co had the following transactions in the last two months of its fiscal year ended May 31
Apr 1 Paid 2,450 cash to an accounting firm for future consulting services.
Apr 1 Paid 3,600 cash for 12 months of insurance through March 31 of the next year
Apr 30 Received 8,500 cash for furture services to be provided to a customer
May 1 Paid 4,450 cash for future newspaper advertising
May 23 Received 10,450 cash for future services to be provided to a customer
May 31 Of the consulting services paid for on April 1, $2,000 worth has been performed
May 31 A portion of the insurance paid for on April 1 has expired. No adjustment was made in April to Prepaid Insurance
May 31 Services worth 4,600 are not yet provided to the customer who paid on April 30
May 31 Of the advertising paid for on May 31 2,050 worth is not yet used
May 31 The company has performed 5,500 of services that the customer paid for on May 23
1) Prepare entries for these transactions under the method that records prepaid expenses and unearned revenues in the balance sheet accounts. Also prepare adjusting entries at the end of the year.
2) Prepare entries for these transactions under the method that records prepaid expenses and unearned revenues in income statement accounts. Also prepare adjusting entries at the end of the year.
3) Explain why the alternative sets of entries in parts 1 and 2 do not result in different financial statement amounts