Question

Party Warehouse Inc. rents a wide variety of products (e.g., tables, chairs, tents, and storage containers) for special events. Upon rental, Party Warehouse requires a deposit which is forfeited if the equipment is not returned at the end of the rental period. Deposits charged are twice the cost of the equipment, and Party Warehouse keeps the equipment in its accounting records until deposits are forfeited. On April 5, a customer rented various containers for an event to be held on April 8, and Party Warehouse collected a $15,000 deposit. The containers were returned on April 10.

Required:

1.	Prepare the entries to record the receipt of the deposit and refund of the deposit at the end of the rental period.
2.	Assume that the customer only returns 80% of the containers on April 10. Prepare the entries to record the forfeiture of the deposit.

Answer 1

1.

Date	Account Titles and Explanation	Debit	Credit
April 5	Cash	$15,000
	Deposit against equipment rental		$15,000
April 10	Deposit against equipment rental	$15,000
	Cash		$15,000

2.

Date	Account Titles and Explanation	Debit	Credit
April 5	Cash	$15,000
	Deposit against equipment rental		$15,000
April 10	Deposit against equipment rental	$15,000
	Deposit forfeited		$3,000
	Cash (15000*80%)		$12,000
April 10	Deposit forfeited	$3,000
	Equipment (3000/2)		$1,500
	Gain on forfeiture of deposit		$1,500