The Ritz Manor is a popular seaside resort. A double room costs $220 for one night. 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? What are the journal entries?
Based on the given information, the Ritz Manor has the following type of adjusting entry:
1. Revenue adjustment: The Ritz Manor receives a share (30%) of the revenue from the vending machines operated by Vendalite. This revenue needs to be recorded in the hotel's financial statements.
The amount of this adjustment is determined by multiplying the total average weekly revenue from the machines ($720) by the hotel's entitled share (30%).
Accounts affected by this adjustment usually include:
- Revenue account: This is an income statement account that records the revenue from the vending machines. The adjustment entry will increase the revenue account.
- Accounts Receivable: The Ritz Manor is entitled to receive a check from Vendalite for their share of revenue. If the check is not yet received by the end of the accounting period, an account called "Accounts Receivable - Vendalite" could be created to reflect the amount due to the hotel from Vendalite.
- Vendalite Payable: This account may also be used to track the amount owed to the Ritz Manor by Vendalite for their share of revenue. If the hotel received the check from Vendalite in advance, this account may already exist and would need to be adjusted.
The adjusting entry for the revenue adjustment could look like this:
Accounts Receivable - Vendalite [Dr/Cr] XX
Revenue [Dr/Cr] XX
(Note: The specific debits or credits depend on the initial account balances and nature of accounts in the real financial statements.)
It's important to note that the adjusting entry for the revenue adjustment may be recorded at the end of the accounting period when the financial statements are prepared.