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32E_2

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Horngren'S Financial And Managerial Accounting
Found in: Page 169

Short Answer

Question :At the beginning of the year, Modish Advertising owed customers $2,100 for unearned revenue collected in advance. During the year, Modish received advance cash receipts of $6,100 and earned $20,000 of service revenue (exclusive of any amount earned from advance payments). At year-end, the liability for unearned revenue is $3,100 and unadjusted service revenue is $20,000. Requirements 1. Record the adjusting entry assuming that Modish records the cash receipt of unearned revenue by initially crediting a liability account. Post the adjusting entry to the Unearned Revenue and Service Revenue T-accounts. Make sure to include the beginning balance and additional unearned revenue in the Unearned Revenue T-account. 2. Record the adjusting entry assuming that Modish records the cash receipt of unearned revenue by initially crediting a revenue account. Post the adjusting entry to the Unearned Revenue and Service Revenue T-accounts. Make sure to include the beginning balance in the Unearned Revenue T-account and the additional unearned revenue in the Service Revenue T-account. 3. Compare the ending balances of the T-accounts under both approaches. Are they the same?

Adjusting entries are as follows:

Date

Accounts and Explanation

Debit

Credit

Service revenue

$1,000

Unearned revenue

$1,000

To record the adjustment in service revenue

T accounts are as follows:

Unearned Revenue

$2,100

$1,000

$3,100

Bal.

Service Revenue

1,000

$20,000

$6,100

$25,100

Bal.

See the step by step solution

Step by Step Solution

Step-by-Step-SolutionStep1: Explanation on Adjusting Entry

At the end year, adjusting entry for earned revenue will be recorded by debiting service revenue and crediting unearned revenueby $1,000 respectively.

Step2: Calculation of Revenue Earned from Advance

Revenue earned from advance is calculated as follows:

Step 3: Calculation of Adjustment for Unearned Revenue

Adjustment for Unearned is calculated as follows:

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