Question

On August 1, 2016, Benjamin and Associates collected exist18,000 in advance for legal services to be rendered for one year. Which of the following entries reflect the end-of-the-year adjustment to reflect revenue earned? 1) Cash 7, 500 Revenue 7, 5002) Accounts Receivable 6,000 Revenue 6,000 3) Cash 18,000 Unearned Revenue 10, 500 4) Revenue 7, 500 Unearned Revenue 7, 500

Answer 1

Answer:

4) Revenue 7, 500 Unearned Revenue 7, 500

Explanation:

* Assuming Year end is December 31, 2016.

On August 1, 2016 the collection was recorded as cash 18,000 to unearned revenue for the services of one year in advance. On December 31, 2016 five months have been passed and services for these months has been performed. So the revenue of 5 months will be recognized and balance of 7,500 is transferred to the revenue account using Uneanred revenue 7,500 to Revenue 7,500.

Revenue Recognized on December 31, 2016 = 18000 x (5/12) = $7,500