Posted by Anonymous on .
Based on this information, what type of adjusting entries does the Ritz Manor have?
The Ritz Manor is a popular seaside resort. A double room costs $220 for one night. In order to reserve a room, guests must pay one night’s stay in advance. On each floor of the hotel, Vendalite Company operates vending machines with energy bars, juices, and other snacks for guests. Vendalite stocks the machines and collects revenue every week. Total average weekly revenue from these machines is $720. The Ritz Manor is entitled to 30% of the revenue from the machines. Vendalite sends a check to the Ritz Manor once at the end of each quarter for the resort’s share of the revenue.
How are the amounts of these adjustments determined?
Guests must pay one night’s stay in advance
On receiving the advance:
Dr Cash 220
Cr Advance room rental revenue 220 (liab a/c)
When the patron has stayed there and checked out:
Dr Advance roon rental revenue 220
Cr Room rental revenue 220 (revenue a/c)
Assuming a/cs are updated by Ritz Manor once a week,
Dr A/cs receivable (Vendalite Co) 216 ($720 x 30%)
Cr Vending machine revenue 216
At the end of the quarter, the a/cs receivable a/c (Vendalite) would have accumulated 13 weeks x 216 or 2808. When Ritz Manor receives the cheque from Vendalite, it'll know the exact amt, so an adjusting entry will be necessary to recognise the overs or unders, for e.g. if the cheque is for 2850, the entry is
Dr Cash 2850
Cr A/cs receivable (Vendalite) 2808
Cr Vending machine revenue 42
This is cos the $720 per week is only an estimated amount, hence 30% of this ($216) is also an estimated amt. But once a quarter upon receiving the cheque from Vendalite, Ritz will know the exact amt.
Ok here goes….LOL!
The adjusting entry that Ritz Manor must have is unearned revenue. The Ritz Manor receives a one-night pay in advance for a reservation. From my understanding, unearned revenue refers to cash received in advance of providing products and services. In addition, the Vendalite Company’s stocking of the vending machines is unearned revenue. On the other hand, it can also be earned revenue. As products or services are provided, the unearned revenue becomes earned revenues.
The amounts of these adjustments are determined by how much the Ritz Manor charges for one night in advance and what they earn for the vending machines. The process of adjusting accounts involves analyzing each account balance and the transactions and events that it is affected by.
The balance sheet accounts are affected by the adjustments. Each adjusting entry affects one or more income statement accounts and one or more balance sheets accounts but not cash.