The Unearned Consulting Revenue account has a balance of $261,220 as of December
ID: 2340379 • Letter: T
Question
The Unearned Consulting Revenue account has a balance of $261,220 as of December 31, 2015. On May 1, 2015 a client paid CMC $153,000 cash in advance for a 12-month consulting services contract. CMC will earn revenue evenly over this 12-month period. This was the only prepayment received from clients during the entire 2015 fiscal year and recorded with a credit to Unearned Revenue. Of the beginningbalance in Unearned Revenue (i.e. at Jan 1 2015), 65% of the work has now been completed by year end.
What is the Adjusting Journal Entry for this? the 65% is somehow confusing me.
Explanation / Answer
The question says Ending unadjusted balance of unearned revenue account is $261220.
We have to find out the beginning balance first to make the adjusting entry.
Since only amount of unearned revenue received during 2015 is $153000, Opening balance will be calculated as follows
(A)
Ending balance
$ 261,220.00
(B)
Less: Added during the year
$ 153,000.00
(A-B)
Opening balance
$ 108,220.00
Opening balance of Unearned revenue is $108,220 and 65% of $108220 is completed by this year end along with 8 months revenue on advance collected on may 1.
Advance is collected on may 1 for 12 month’s service. 8 month’s service has been rendered till December, so revenue for 8 months will be recorded and adjusted with Unearned revenue.
Amount of Revenue to be recorded is calculated below
Earned portion
Working
Amount of earned revenue
Opening balance
$ 108,220.00
65% of 108220
(108220x65%)
$ 70,343.00
Received on may 1 2015
$ 153,000.00
8 months out of 12
(153000/12x8)
$ 102,000.00
Total Adjustment
$ 172,343.00
Adjusting entry
General Journal
Debit
Credit
Unearned revenue
$ 172,343.00
Service Revenue
$ 172,343.00
(Revenue earned)
(A)
Ending balance
$ 261,220.00
(B)
Less: Added during the year
$ 153,000.00
(A-B)
Opening balance
$ 108,220.00
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