Question

Pharoah Financial Services performs bookkeeping and tax-reporting services to startup companies in the Oconomowoc area. On January 1, 2020, Pharoah entered into a 3-year service contract with Walleye Tech. Walleye promises to pay $9,500 at the beginning of each year, which at contract inception is the standalone selling price for these services. At the end of the second year, the contract is modified and the fee for the third year of services is reduced to $7,500. In addition, Walleye agrees to pay an additional $19,000 at the beginning of the third year to cover the contract for 3 additional years (i.e., 4 years remain after the modification). The extended contract services are similar to those provided in the first 2 years of the contract. Prepare the journal entries for Pharoah in 2020 and 2021 related to this service contract. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Debit Credit

Answer 1

Answer:

A)
Date	Particular	Debit	Credit
1-Jan-2020	Cash A/C       Dr	9500
	To unearned revenue A/C		9500
31-Dec-2020	Unearned revenueA/C	9500
	To Service revenue A/C		9500
1-Jan-2021	Cash A/C       Dr	9500
	To unearned revenue A/C		9500
31-Dec-2021	Unearned revenueA/C	9500
	To Service revenue A/C		9500
B)
1-Jan-2022	Cash A/C       Dr	26500
	To unearned revenue A/C		26500
31-Dec-2022	Unearned revenueA/C	6625
	To Service revenue A/C		6625
	(26500/4)
C)
1-Jan-2022	Cash A/C       Dr	26500
	To unearned revenue A/C		26500
31-Dec-2022	Unearned revenueA/C	7500
	To Service revenue A/C		7500