Question

QuesLIUILI Aggie Kids Parties Co. engaged in the following transactions during Jan 2018, its first month of operations: Jan. 1 W. White and his brother each invested $20,000 of cash in exchange for stock in the company. Performed service for customers on account, $2,850 Purchased a building for $20,000 to use as a future office. Paid $2,000 and signed a 2 year note for the balance. Purchased $300 of office supplies. Paid cash. Received $2,000 as a deposit for a job to be performed in February Paid employee salaries of $950. Performed service for a customer and received the fee of $1,500. Received payments of $750 from customers on account. Received monthly utility bill of $125. This bill is due on February 15. Paid the following expenses: salary, $950; rent, $500. Counted $100 of office supplies remaining on hand. The journal entry for the January 9 would include: A. a credit to Cash for $2,000 B. a debit to Accounts Receivable for $2,000 C. a credit to Service Revenue for $2,000 D. a debit to Accounts Payable for $2,000 E. a credit to Unearned Revenue for $2,000

Answer 1

On January 9, cash $2,000 was received in advance for services to be performed in February. Hence, $2,000 represents unearned revenue.

It has the following effects:

(i) Assets increase in the form of cash $2,000.

(ii) Liabilities increase in the form of unearned revenue $2,000

The following journal entry is required on January 9:

General Journal	Debit	Credit
Cash	$2,000
Unearned service revenue		$2,000
( To record unearned revenue)

Correct option is E.

Kindly comment if you need further assistance.

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