Question

On September 1, 2021, Gold Gaming sold 400 one-year subscriptions to its online gaming website for $90 each. The total amount received was credited to Deferred Revenue. What would be the required adjusting entry at December 31, 2021?
A. Debit Deferred Revenue and credit Service Revenue for $24,000.
B. Debit Deferred Revenue and credit Service Revenue for $36,000.
C. Debit Service Revenue and credit Deferred Revenue for $24,000.
D. Debit Deferred Revenue and credit Service Revenue for $12,000.

Answer 1

Answer:

D. Debit Deferred Revenue and credit Service Revenue for $12,000.

Explanation:

Total Subscription receipt  for one year = 400 x $90 = $36,000

Number of months accrued = December 31, 2021 - September 1, 2021  = 4 months

Revenue accrued = Total Revenue x (Number of Months accrued / 12) = $36,000 x (4/12) = $12,000

So the correct option is D. Debit Deferred Revenue and credit Service Revenue for $12,000.

Answer 2

Answer:

D. Debit Deferred Revenue and credit Service Revenue for $12,000.

Explanation:

The money received in advance before the deliver of the service is recognized in the books by debiting cash account and crediting deferred revenue. As the service is earned, revenue is credited and deferred revenue debited.

Total amount collected = $90 × 400 = $36,000

Monthly revenue = 1/12 × $36,000 = $3,000

Revenue earned between September and December = 4 × $3,000

= $12,000

Entries required

D. Debit Deferred Revenue and credit Service Revenue for $12,000.