Question

Golddigger Services, Inc. provides services to clients. On May 1, a client prepaid Golddigger Services $60,000 for 6-months services in advance. Golddigger Services' general journal entry to record this transaction will include a:_________
A) Debit to Unearned Management Fees for $62,000.
B) Credit to Cash for $62,000.
C) Credit to Unearned Management Fees for $62,000.
D) Debit to Management Fees Earned for $62,000.
E) Credit to Management Fees Earned for $62,000.

Answer 1

Answer:

C) Credit to Unearned Management Fees for $62,000.

Explanation:

* There is an Inconsistency with the amount of fee mentioned in Question and In options $60,000 and 62,000 respectively.

The Service fee is received in advance and the service is not been performed. You can record the revenue when you perform the service against the amount received. So, amount 62,000 will be the Unearned Management fee and it will be a liability and the Journal transaction for this event will be as follows:

Dr. Cash                                            $62,000

Cr. Unearned Management Fees   $62,000

So the correct option is C) Credit to Unearned Management Fees for $62,000.