Question

QS 3-11 Adjusting for unearned revenues LO P1 For each separate case below, follow the three-step process for adjusting the unearned revenue liability account at December 31. 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 $11,300 cash in advance for four months of legal services on October 1, 2017, and records it by debiting Cash and crediting Unearned Revenue both for $11,300. It is now December 31, 2017, and Tao has provided legal services as planned. What adjusting entry should Tao make to account for the work performed from October 1 through 31, 2017? Unearned revenue Step 1: Determine what the current account balance equals. Step 2: Determine what the current account balance should equal.

Answer 1

Solution a:

Step 1: Determine what the current account balance equals.	$11,300.00	Credit
Step 2: Determine what the current account balance should equal.	$2,825.00	Credit
Step 3: Record the December 31 adjusting entry to get from step 1 to step 2
Unearned revenue Dr	$8,475.00
To Service revenue		$8,475.00

Solution b:

Step 1: Determine what the current account balance equals.	$3,900.00	credit
Step 2: Determine what the current account balance should equal.	$1,950.00	credit
Step 3: Record the December 31 adjusting entry to get from step 1 to step 2
Unearned subscription revenue Dr	$1,950.00
To Subscription revenue		$1,950.00