Question

Gomez Company collected $19,200 on September 1, Year 1 from a customer for services to be provided over a one-year period beginning on that date. How much revenue would Gomez Company report related to this contract on its income statement for the year ended December 31, Year 1?

Answer 1

Answer:

$6,400

Explanation:

On December 31, year 1, 4 months has been passed so, the revenue of 4 months should be recognized at this date. The payment was recorded as unearned revenue on September 1 using following entry.

September 1,

Dr. Cash                            $19,200

Cr. Unearned Revenue    $19,200

The revenue account will be credited by the 4 months revenue amount and unearned revenue account will be debited to reduce the amount by the four month accrual.

Total Unearned revenue = $19,200

Revenue for four months = $19,200 x 4/12 = $6,400