Problem 3 Early in 2020, after the 2019 financial statements had been issued, a company found...

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Problem 3 Early in 2020, after the 2019 financial statements had been issued, a company found that an advanced payment of $18

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Answer 1

Answer #1

Journal entries
Date	Account	Debit	Credit	Calculation
1-Jan-20	Retained Earnings	$ 100,000		=180,000/36*20
	Unearned Revenue		$ 100,000
To record prior period adjustment related to unearned revenue of Sep 2018

Note
Since advance is received on Sep 1, 2018, from Sep 2018 to Dec 2019 is 16 months
for which revenue should be recognized which is correctly done as of early 2020.
Out of total 3 years (36 months), remaining 20 months (36-16) should be recognized
as Unearned Revenue instead of Revenue as is currently wrongly recorded.
So, we need to take 180,000/3620 = 100,000 out of Retained Earnings and take it as*
Unearned Revenue in early 2020

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Answer 2

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