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harra harra
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6 years ago
A company accepted $6,000 on August 1 for services to be performed evenly over the next 12 months. The adjusting entry on December 31 would include a:
A) debit to unearned revenue $2,500.
B) debit to service revenue for $2,500.
C) debit to unearned revenue for $3,500.
D) credit to service revenue for $3,500.
Textbook 
Accounting, Volume 1, Canadian Edition

Accounting, Volume 1, Canadian Edition


Edition: 9th
Authors:
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HanoiHanoi
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6 years ago
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A

Based on the information provided, let's analyze the situation step by step:

1) August 1: The company received $6,000 for services to be performed over the next 12 months. At this point, the company hasn't yet earned any revenue, so the journal entry would be as follows:

Debit: Cash $6,000
Credit: Unearned Revenue $6,000

This records the increase in cash (an asset account) and the liability of unearned revenue (a liability account).

2) December 31: At the end of the year, the company needs to adjust its accounts to reflect the portion of revenue that has been earned. Since services are being performed evenly over 12 months, four months have passed (August, September, October, and November). Therefore, the company has earned a portion of the revenue during this period.

The adjusting entry would be as follows:

Debit: Unearned Revenue $2,500
Credit: Service Revenue $2,500

This entry reduces the unearned revenue liability by the amount of revenue that has been earned ($2,500), and it recognizes the revenue earned during the four months.

After this adjusting entry, the Unearned Revenue account will have a balance of $3,500 ($6,000 - $2,500), representing the unearned revenue yet to be recognized in the next eight months (December, January, February, March, April, May, June, and July).
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wrote...
#2
2 years ago
thanks
Anonymous
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#3
4 months ago
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