Question

a. Tao Co. receives $11,700 cash in advance for four months of evenly planned legal services beginning on October 1. ng Cash and crediting Unearned Revenue both for $11.700. 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? Unearned revenue Debit or Credit? Credit Step 1: Determine what the current account balance equals. $ 11,700 11,700 2,925 Step 2: Determine what the current account balance should $ 8,775 Credit 8,775 equal. Credit Step 3: Record the December 31 adjusting entry to get from step 1 to step 2 Adjusting Entry Debit Unearned revenue 2,925 Legal services revenue 2,925 b. Caden started a new publication called Contest News. Its subscribers pay $48 to receive 12 monthly issues. With every new subscriber, Caden debits Cash and credits Unearned Subscription Revenue for the amounts received. The company has 100 new subscribers as of July 1. It sends Contest News to each of these subscribers every month from July through December. Assume no changes in subscribers, prepare the year-end journal entry that Caden must make as of December 31 to adjust the Subscription Revenue account and the Unearned Subscription Revenue account. Unearned subscription revenue 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.

Answer 1

Answer

• Requirement [a]

				Unearned Revenue
Step 1	$11,700	Credit			$11,700
Step 2	$2,925	Debit		$8,775
Step 3	Accounts title	Debit	Credit		$2,925
	Unearned Revenue	$8,775
	Legal Service Revenue		$8,775

• Requirement [b]

				Unearned Revenue
Step 1	$4,800	Credit [100 x $ 48] for 12 months			$4,800
Step 2	$2,400	Credit [100 x $ 48 for remaining 6 months]		$2,400
Step 3	Accounts title	Debit	Credit		$2,400
	Unearned subscription revenue	$2,400
	Subscription Revenue		$2,400