Question

Record journal entries for the following transactions. (a) On December 1, $18,000 was received for a service contract to be performed from December 1 through April 30. Dec. 1 (b) Assuming the work is performed evenly throughout the contract period, prepare the adjusting journal entry on December 31. Dec. 31

Answer 1

Answer:

See explanation section

Explanation:

(a) December 1     Cash             Debit    $18,000

                        Unearned revenue      Credit    $18,000

Note: The company received the money in advance for a contract to do during December to April. Therefore, they received cash while a liability increased due to receiving advance money.

(b) December 31   Unearned revenue     Debit    $3,600

                            Service revenue           Credit    $3,600

Note: As the company started performing, after the completion of 1st month, i.e., December 1 to December 31, the advance money started expiring because of providing services. Moreover, as the service is performed evenly for 5 months, the 1st month's revenue = $(18,000/5) = $3,600.