Question

1) Sussex Ltd Advisory

Sussex Ltd is a company that provides consulting services for firms in the wine making industry. On 1 March 2015 Sussex Ltd receives a non-refundable upfront fee of $120,000 in cash from Harrington Ltd. Under the agreement with Harrington Ltd, Sussex Ltd must provide on-going advice services until 1 March 2016. Sussex Ltd team of advisers that works on the Harrington advisory engagement is paid $5,000 a month. Sussex Ltd has a financial year-end date of 30 June.

a) Write down the journal entry (if any) in Sussex Ltd’s ledger in relation to the non-refundable upfront fee from Harrington on 1 March 2015.

b) As of 30 June 2015, indicate which of Sussex Ltd accounts has been impacted, and by how much, with respect to the advisory engagement with Harrington Ltd (ignore any tax impact):

Answer 1

	Journal entries
1-	date	explanation	debit	credit
	mar 1 2015	cash	120000
		unearned service revenue		120000
	Adjustment entry on june 30 2015
2-	30-Jun	unearned service revenue	40000
		service revenue		40000
	amount that would be affected on the adjustment entry on June 30 would unearned revenue account because revenue for the 4 months has been earned and unearned revenue account would be debited by 40000 and service revenue is earned so service revenue account would be credited by 40000