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:
Question 1 options:

debit to unearned revenue for $3,500.

debit to service revenue for $2,500.

debit to unearned revenue $2,500.

credit to service revenue for $3,500.


The company accepted $6,000 on August 1 for services that are to be performed over 12 months. To adjust the revenue correctly, we need to calculate how much of the $6,000 has been earned by December 31.

**Step-by-step breakdown:**

1. **Total amount received**: $6,000 for 12 months.
2. **Monthly revenue**: $6,000 ÷ 12 = $500 per month.
3. **Time elapsed from August 1 to December 31**: 5 months.

Thus, the revenue earned from August 1 to December 31 would be:
\[
5 \, \text{months} \times 500 = 2,500.
\]

Therefore, by December 31, the company has earned $2,500 in revenue, and the unearned revenue account should be adjusted to reflect this.

**The adjusting entry** would include:
- **Debit to Unearned Revenue for $2,500** (reducing the liability as the revenue is now earned).
- **Credit to Service Revenue for $2,500** (recognizing the earned revenue).

So, the correct answer is:
- **Debit to Unearned Revenue $2,500**.

Let me know if you'd like more details or have any questions!

Here are 5 related questions to think about:
1. How would the entry look if the service period was only 6 months?
2. What would the adjusting entry be if no services were performed by December 31?
3. How would you record the initial receipt of $6,000 in the books on August 1?
4. How would this adjusting entry affect the income statement and balance sheet?
5. How does the concept of accrual accounting apply in this scenario?

**Tip**: Adjusting entries ensure revenues and expenses are recognized in the correct accounting period, following the matching principle.

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: 

- Debit to unearned revenue for $3,500. 
- Debit to service revenue for $2,500. 
- Debit to unearned revenue $2,500. 
- Credit to service revenue for $3,500.

Learn how to adjust entries for unearned revenue of $6,000 over 12 months. This problem focuses on revenue recognition under accrual accounting, where $2,500 of revenue is earned by December 31. Suitable for accounting and finance students at the college level.

Math Problem Statement

Solution

Ask a new question for Free

By Image

Math Problem Analysis

Mathematical Concepts

Formulas

Theorems

Suitable Grade Level

Related Recommendation