$101$

EXERCISE $4\mathrm{.}4$

Preparing Adjusting

Entries to Convert an

$107$ Asset to an Expense and to Convert a Liability to Revenue

Carnival Corporation is the world's largest cruise line company. Its printing costs for brochures are initially recorded as Prepaid Advertising and are later charged to Advertising Expense when they are mailed. Passenger deposits for upcoming cruises are considered unearned revenue and are recorded as Customer Deposits as cash is received. Deposited amounts are later converted to Cruise Revenue as voyages are completed.

a$.$ Where in its financial statements does Carnival Corporation report Prepaid Advertising? Where in its financial statements does it report Customer Deposits?

b$.$ Prepare the adjusting entry necessary when brochures costing $$18$ million are mailed.

c$.$ In its most recent annual report, Carnival Corporation reported Customer Deposits in excess of $$2\mathrm{.}8$ billion. Prepare the adjusting entry necessary in the following year as $$90$ million of this amount is earned.

d$.$ Consider the entire adjusting process at Carnival Corporation. Which adjusting entry do you think results in the most significant expense reported in the company's income statement?