Party Warehouse Inc. rents a wide variety of products (e.g., tables, chairs, ten
ID: 2599449 • Letter: P
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.Explanation / Answer
Security Deposits are recorded as the liability of the firm, as it has to be refunded at the end of the contract.
Date Receipt of Deposit Dr. Amount Cr. Amount
April 5 Cash Account Dr.............15,000
To Security Deposit Account Cr.......15,000
(Being the deposit amount received)
Return on Security:
Date Receipt of Deposit Dr. Amount Cr. Amount
April 10 Security Deposit Account Dr.............15,000
To Cash Account Cr............................15,000
(Being the deposit amount paid back)
Assume that the customer only returns 80% of the containers on April 10. Prepare the entries to record the forfeiture of the deposit.
Forfeiture of deposit should be treated as income.
since its 80% the amount would be 80% of 15000 = 12,000
Entry for forfeiture is
Date Particulars Dr. Amount Cr. Amount
April 10 Security Deposit Ac...Dr.........15,000
To Income Account Cr.......................................12000
To Bank Account...Cr...........................................3000
(Being the security deposit was forfeited to 80% so the forfeited amount was treated as income, and the rest 3000 was paid to the customer)