Question

Spafford Services, Inc. provides services to clients. On May 1, a client prepaid Spafford Services $83,000 for 6-months services in advance. Spafforc Services' general journal entry to record this transaction will include a: Multiple Choice
A. Credit to Uneamed Management Fees for $83,000.
B. Debit to Management Fees Earned for $83.000.
C. Credit to Management Fees Earned for $83,000
D. Debit to Unearned Management Fees for $83.000
E. Credt to Cash for $83,000. 30 of 30

Answer 1

Answer:

A. Credit to Unearned Management Fees for $83,000.

Explanation:

When an amount is received in advance for a service yet to be rendered, the company recognizes a liability by debiting cash account and crediting unearned revenue.

As the service is performed and revenue is earned, debit unearned revenue and credit service revenue.

In this instance , the liability account is the unearned management fees. As such, the amount received is posted there as a credit entry.