Answer
The company receive $5,400 advance payment on service to be performed for 1 year.
The journal entry for unearned revenue received
Cash a/ c Dr 5,400
To unearned revenue 5,400
The company received $5,400 for 1 year service. 12 month in one year, the number of October 1st December 31st is 3 months.
Service costing from October 1st December 31st
= 5,400 × (3/12) = $1,350
The journal entry in 31st December for recording the event is
Unearned revenue a/c Dr 1,350
To revenue 1,350
The unearned revenue is debited with $1,350
Option debt to unearned revenue for $1,350 is CORRECT.
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