Question

Exercise 13-11A Recording unearned revenue and identifying its effect on financial statements LO 13-1 

Raylan received a $58,000 cash advance payment on June 1, Year 1, for consulting services to be performed in the future. Services were to be provided for a one-year term beginning June 1, Year 1. 

Required 

a. & b. Record the June 1 cash receipt in T-accounts and the adjustment required as of December 31, Year 1. 

c. Show the preceding transaction and related adjustment in a horizontal statements model. 

d. Determine the amount of net income on the Year 1 income statement. What is the amount of net cash flow from operating activities for Year 1?

e. What amount of liabilities would Raylan report on the Year 1 balance sheet?

Complete this question by entering your answers in the tabs below. 

Answer 1

Part a & b

Cash A/c

Opening balance
01.06	58,000	Closing balance	58,000

Unearned revenue A/c

Opening balance
		01.06	58,000
31.12 [58,000 x 7/12]	33,833
Closing balance	24,167

Service Revenue A/c

Opening balance
Closing balance	33,833	31.12	33,833

Part c

Date	assets	liabilities	stockholders equity	revenue	expenses	net income	Statement of cash flows
6/1	58,000	58,000					Operating activity
12/31		(33,833)	33,833	33,833		33,833
Balance	58,000	24,167	33,833	33,833		33,833

Part d

Revenue	33,833
Less: Expenses	0
Net Income	33,833
Cash flow from operating activities
Cash received from revenue	58,000
Net cash from operating activities	58,000

Part e

Unearned revenue balance = 24,167