Question

Step 1: Determine what the current account balance equals. Step 2: Determine what the current account balance should equal Step 3. Record the December 31 adjusting entry to get from step 1 to step 2 Assume no other adjusting entries are made during the year. a. Tao Co. receives $10,000 cash in advance for four months of evenly planned legal services beginning on October 1. Tao records it by debiting Cash and crediting Unearned Revenue both for $10,000. It is now December 31, and Tao has provided legal services as planned. What adjusting entry should Tao make to account for the work performed from October 1 through December 31? Step 1: Determine what the current account balance equals. Debitor Credit? 10,000 Unearned revenue 10,000 10,000 $ Step 2: Determine what the current account balance should equal Step 3: Record the December 31 adjusting entry to get from step 1 to step 2

Answer 1

1)	The current account balance equals					$ 10,000.00	Credit
2)	The current account balance should equal				($ 10000 x 1/4)	$   2,500.00	Credit
	(Since the services for 3 months, i.e., from Oct to Dec, has been provided)
3)	Adjusting Entry
	Particulars			Debit	Credit
	Unearned Revenue			$ 7,500.00
	To Service Revenue				$      7,500.00
	($ 10000 x 3/4)

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