Exercise 4.4 (Static) Preparing Adjusting Entries to Convert an Asset to an Expense and to Convert a Liability to Revenue (LO4-1, LO4-2, LO4-3, LO4-4, LO4-5, LO4-6, LO4-7)

Carnival Corporation & PLC is one of the worlds largest cruise line companies. 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 & PLC report Prepaid Advertising? Where in its financial statements does it report Customer Deposits?

Prepaid advertising:

Customer deposits:

B. & c. Prepare the adjusting entry necessary when brochures costing $3.5 million are mailed. In its most recent annual report, Carnival Corporation & PLC reported Customer Deposits of $4.0 billion. Prepare the adjusting entry necessary in the following year as $60 million of this amount is earned.

• Record the mailing of brochures that had cost $3.5 million to print.
• Record the revenue earned for voyages completed.