Question

In the second week of December, Security First agreed to provide 30 days of consulting services to a local fitness club for a fixed fee of $4,140. The terms of the initial agreement call for Security First to provide services from December 12, through January 10, or 30 days of service. The club agrees to pay Security First $4,140 on January 10, when the service period is complete. Review the unadjusted balance in Consulting revenue, and prepare the necessary adjusting entry, if any.

Answer 1

Answer:

Security First

Debit Accounts Receivable $2,760

Credit Consulting Revenue $2,760

To record the accrued revenue for consulting services.

Explanation:

a) Data and Calculations:

Value of a consulting services contract = $4,140

Period of services = December 12 to January 10

Payment date = January 10

The fee will be divided by 30 days with 20 days' apportioned to the current year while 10 days' will be apportioned to the following year, thus:

Current year's revenue = $4,140 * 20/30 = $2,760

Next year's revenue = $4,140 * 10/30 = $1,380

Therefore, the unadjusted balance in Consulting Revenue will increase by $2,760 with the corresponding debit entry in the accounts receivable account.