Qs 3-10 Uneaned (deferred) revenues adjustments LO P For each separate case belo
ID: 2510700 • Letter: Q
Question
Qs 3-10 Uneaned (deferred) revenues adjustments LO P For each separate case below, follow the three-stop process for adjusting the uneamed revenue liability account at December 31 Step 1: Determine what the current account balance equals. Step 2: Determine what the current account balance should equal. Step 3: Record the December 31 adjusting entry to get from step 1 to step 2 Assume no other adjusting entries are made duning the year The Krug Company collected $9,000 rent in advance on November 1, debiting Cash and crediting Unearned Rent Revenue. The tenant was paying 12 months" rent in advance and occupancy began November 1 Step 1: Determine what the current account balance equals. Sep 2 Decermine what the current account balance should equal Step 3. Record the December 31 adjusting entry to get from step 1 to step 2 b. The company charges $100 per month to spray a house for insects. A customer paid $400 on October 1 in advance for four treatments, which was recorded with a debit to Cash and a credit to Unearned Services Revenue. At year-end, the company has applied three treatments for the customer. Unearned services revenue Step 1: Determine what the current account balance equals. Step 2 Determine what the current account balance should equal Step 3: Reoord the December 31 adjusting entry to get from step 1 to step 2 c On September 1, a client pald the company $30,000 cash for sik months of rent in advance (the client leased a building and took occupancy immediately). The company recorded the cash as Unearned Rent Revenue Unearned rent revenue Step 1: Determine what the current account balance equais Slep 2: Determine what the current account baiance should equal. Step 3: Record the December 31 adjusting entry to get from step 1 to step 2Explanation / Answer
Entries to show unearned revenues adjustments:
Step1: The current account balance equals to $9,000 received on November 1 for one year rent, equaling to $750per month.
Step 2: Two months elapsed between the receipt date (November 1 – December 31) and the financial statement date of December 31. Ten months of rent revenue remains as unearned while two months of rent revenue has been recognized. The balance sheet should report the unused portion of rent revenue as $7,500 as on December 31.
Unearned Rent Revenue
1-Nov
$9,000
Adjustment, $1,500
31-Dec
$7,500
Step 3: The adjusting entry to get from Step 1 to Step 2 reduces the balance in the balance sheet account, Unearned Rent Revenue. The entry credits the income statement account, Rent Revenue with $1,500 and debits the Unearned Rent Revenue account $1,500.
31-Dec
Unearned Rent Revenue
$1,500
Rent Revenue
$1,500
(To recognize rent revenue for 2 months (November and December)
Step 1: The current account balance equals to $400 received on October 1, for four months spray charges received, equaling to $100 per month.
Step 2: The company has applied three treatments during the receipt period and (Oct 1 – Dec 31) and the financial Statement date of December 31. One month of Service Revenue remains unearned while three months of service revenue is recognized as earned. The balance sheet should recognize the unused portion $100 as unearned revenue as at December 31.
Unearned Revenue
1-Oct
$400
Adjustment $300
31-Dec
$100
Step 3: The adjusting entry to get from Step 1 to Step 2 reduces the balance in the balance sheet account, Unearned Revenue. The entry credits the income statement account, Service Revenue with $300 and debits the Unearned Revenue account $100.
31-Dec
Unearned Revenue
$300
Service Revenue
$300
(To recognize service revenue for 3 months (Oct through December)
Step 1: The current account balance equals to $30,000 received on September 1, for six months of rent received in advance, equaling to $5,000 per month.
Step 2: The company recognizes four months of rent revenue during the receipt period and (Sept1 – Dec 31) and the financial Statement date of December 31. Two months of Rent Revenue remains unearned while four months of Rent revenue, $20,000 ($5,000 x 4) is recognized as earned. The balance sheet should recognize the unused portion $10,000 as unearned Rent Revenue as at December 31.
Unearned Revenue
1-Sept
$30,000
Adjustment $20,000
31-Dec
$10,000
Step 3: The adjusting entry to get from Step 1 to Step 2 reduces the balance in the balance sheet account, Unearned Rent Revenue. The entry credits the income statement account, Rent Revenue with $20,000 and debits the Unearned Rent Revenue account $10,000.
31-Dec
Unearned Rent Revenue
$20,000
Rent Revenue
$20,000
(To recognize rent revenue for 4 months (September through December)
Unearned Rent Revenue
1-Nov
$9,000
Adjustment, $1,500
31-Dec
$7,500