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.

Based on this information, what type of adjusting entries does the Ritz Manor have?

How are the amounts of these adjustments determined?

Which accounts are affected?

Based on the information provided, the Ritz Manor has two types of adjusting entries:

1. Revenue from Vendalite: Since the Ritz Manor is entitled to 30% of the revenue generated by the vending machines, an adjusting entry is made to recognize this revenue. This entry ensures that the resort's share of the revenue is correctly recorded.

2. Prepaid Room Revenue: When guests reserve a room at the Ritz Manor, they are required to pay one night's stay in advance. This payment is recorded as a liability until the service (the guest's stay) is provided. An adjusting entry is made to recognize the portion of the prepayment that corresponds to the current period.

The amounts of these adjustments are determined as follows:

1. Revenue from Vendalite: The total average weekly revenue from the vending machines is given as $720. Since the Ritz Manor is entitled to 30% of this revenue, the amount of the adjustment can be calculated as (30% * $720) = $216.

2. Prepaid Room Revenue: The amount of the adjustment depends on the number of nights for which prepayments have been made by guests. Since the example doesn't provide specific information on this, we would need additional data to determine the exact amount of the adjustment.

The accounts affected by these adjusting entries are:

1. Revenue from Vendalite: The revenue from the vending machines is typically recognized as "Other Income" or "Miscellaneous Income" in the income statement.

2. Prepaid Room Revenue: The prepayments made by guests are initially recorded as a liability in the balance sheet under the account "Unearned Revenue." The adjustment reduces the unearned revenue and recognizes the portion that corresponds to the current period as "Room Revenue" in the income statement.