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Chapter 3: Q17SE_2 (page 161)

On September 1, 2018, Salem Landscaping collected $24,000 in advance from customers for landscaping services. The service revenue will be earned monthly over the 12-month period ending August 31, 2019. Requirements 1. Journalize the entry on September 1 by using the alternative treatment of deferred revenues. 2. Record the December 31, 2018 adjusting entry

Short Answer

Expert verified

Date

Account and Explanation

Debit

Credit

31-12-2018

Service Revenue

$16,000

Unearned Revenue

$16,000

To record unearned revenue

Step by step solution

01

Step-by-Step SolutionStep 1: Explanation of Entry

On December 31, 2018, adjusting entry for unearned revenue will be recorded by debiting service revenue and crediting unearned revenue by $16,000, respectively, to record unearned revenue.

02

Calculation of Revenue Earned

Revenue earned is calculated as follows:

RevenueEarned=AmountReceived脳NumberofMonthsExpiredMonthsPerYear=$24,000脳412=$8,000

03

Calculation of Unearned Revenue

Unearned revenue is calculated as follows:

UnearnedRevenue=AmountReceived鈭�RevenueEarned=$24,000鈭�$8,000=$16,000

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