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 $10,000 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.

Chart of Accounts

CHART OF ACCOUNTS

Party Warehouse Inc.

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
141	Inventory of Equipment
152	Prepaid Insurance
181	Equipment
189	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
233	Deposit from Customer
250	Unearned Revenue
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
432	Revenue from Deposits

	EXPENSES
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
559	Miscellaneous Expenses
910	Income Tax Expense

General Journal

Prepare the entries to record the receipt of the deposit and refund of the deposit at the end of the rental period. Additional Instructions

PAGE 9

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4

Assume that the customer only returns 80% of the equipment on April 10. Prepare the entries to record:

1.	the forfeiture of 20% of the original deposit. Assume that the refund of 80% of the original deposit has already been recorded.
2.	the cost of the containers that were not returned.

Additional Instructions

PAGE 9

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4

Answer 1

Solution 1:

Journal Entries - Party Warehouse Inc.
Date	Particulars	Debit	Credit
5-Apr	Cash Dr	$10,000.00
	To Deposit from customer		$10,000.00
	(To record receipt of deposit)
10-Apr	Deposit from customer Dr	$10,000.00
	To Cash		$10,000.00
	(To record refund of deposit)

Solution 2:

Journal Entries - Party Warehouse Inc.
Date	Particulars	Debit	Credit
10-Apr	Deposit from customer Dr	$2,000.00
	To Revenue from deposit		$2,000.00
	(To record forfiture of deposits)
10-Apr	Miscellenous expense Dr	$1,000.00
	To Equipment		$1,000.00
	(To record write off the equipment not returned)