I am having trouble with this can someone please help me? Thank You
Post your response to the following: 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.
o Based on this information, what type of adjusting entries does the Ritz Manor have?
o How are the amounts of these adjustments determined?
o Which accounts are affected?
Based on the information, the type of adjusting entries the Ritz Manor must have is unearned revenue. The Ritz Manor receives a one night pay in advance for a reservation. “The term unearned revenue refers to cash received in advance of providing products and services” (Larson, Wild & Chiapetta, 2005, pg. 101). Also, the Vendalite Company’s stocking of the vending machines is a unearned revenue. In turn, it can also be an earned revenue. “As products or services are provided, the unearned revenue becomes earned revenues” (Larson, Wild & Chiapetta, 2005, pg. 101).
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 affect to determine any needed adjustments” (Larson, Wild & Chiapetta, 2005, pg. 97).
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)” (Larson, Wild & Chiapetta, 2005, pg. 105).
Reference
Larson, K.D., Wild, J.J., Chiapetta, B. (2005). Fundamental Accounting Principles.
Chapter 3, pgs. 93-133. New York: McGraw-Hill Irwin.
Based on the information provided, the Ritz Manor would have to make adjusting entries related to the revenue they are entitled to from the vending machines operated by Vendalite Company.
The amounts of these adjustments are determined based on the total average weekly revenue from the vending machines, which is $720, and the Ritz Manor's entitlement of 30% of that revenue.
The accounts that would be affected by these adjusting entries would be the revenue account and the accounts receivable account.
To calculate the amount of the adjusting entry, you would first determine the quarterly revenue by multiplying the weekly revenue by the number of weeks in a quarter. In this case, there are typically 13 weeks in a quarter. So, the quarterly revenue would be $720 x 13 = $9,360.
Next, you would calculate the Ritz Manor's share of the revenue by multiplying the quarterly revenue by their entitlement percentage of 30%. So, the Ritz Manor's share would be $9,360 x 0.30 = $2,808.
This $2,808 would then be recorded as an adjusting entry on the date of the financial statement at the end of the quarter. The revenue account would be debited for $2,808, increasing the revenue for the period, and the accounts receivable account would be credited for $2,808, reflecting the amount owed to the Ritz Manor by Vendalite Company.