[esm0924]

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?

[esm0924]

Here is my thought:

I would say because it expects to have its money for the rooms paid in advance it have the accrual-basis accounting system set up. It also expect to have the money for the candy machine not when the candy is place into the machine but at a latter time which also leads me to believe that the accrual-basis would be best suited for this company.

For the amount of the room which is $220 a night it is asked that you pay in advance. The revenue for the vending machine is collected every week and the Ritz Manor gets 30% of the profit for use of the building at the end of every quarter.

The cash-basis accounting is affected because although the money is accounted for it is not there at the time of the transaction.

[CaptainForest]

You make good points.

There are 2 different revenue streams here.

First, we have the vending machines. Since they can reasonably expect what their revenue from that is every week, they can estimate at year end (before they receive the cheque) what their revenues are.

Second, the hotel rooms. The $220 is just Unearned Revenue.

The accrual system is the best way to go.