Sentry Transport Inc. of Atlanta provides in-town parcel delivery services in addition to a full range of passenger services. Sentry engaged in the following activities during the current year:
a. Sentry received $3,500 cash in advance from Rich’s Department Store for an estimated 175 deliveries during December 2011 and January and February of 2012. The entire amount was recorded as unearned revenue when received. During December 2011, 60 deliveries were made for Rich’s.
b. Sentry operates several small buses that take commuters from suburban communities to the central downtown area of Atlanta. The commuters purchase, in advance, tickets for 50 one- way trips. Each 50-ride ticket costs $500. At the time of purchase, Sentry credits the cash received to unearned revenue. At year-end, Sentry estimates that revenue from 9,750, one- way rides has been earned.
c. Sentry operates several buses that provide transportation for the clients of a social service agency in Atlanta. Sentry bills the agency quarterly at the end of January, April, July, and October for the service performed that quarter. The contract price is $9,000 per quarter. Sentry follows the practice of recognizing revenue from this contract in the period in which the service is performed.
d. On December 23, Delta Airlines chartered a bus to transport its marketing group to a meeting at a resort in southern Georgia. The meeting will be held during the last week in January 2012, and Delta agrees to pay for the entire trip on the day the bus departs. At year-end, none of these arrangements have been recorded by Sentry.
1. Prepare adjusting entries at December 31 for these four activities.
2. What would be the effect on revenue if the adjusting entries were not made?