Jane Company collected $5,000 cash in advance during December 2004 for services

Question

Jane Company collected $5,000 cash in advance during December 2004 for services to be performed in December 2004 and January 2005. At the end of December 2004 an adjusting entry was made to debit Unearned Revenue and credit Service Revenue for $2,500. If the adjusting entry were not made: Total assets at 12/31/04 would be overstated. O Total assets at 12/31/04 would be understated. Total liabilities at 12/31/04 would be overstated. Total liabilities at 12/31/04 would be understated. O None of the above.

Explanation / Answer

Answer. Total Liabilities at 12/31/2004 would be overstated. The Adjusting Journal Entry to be Passsed on Dec -31 is: Date Particulars Dr. Amt. Cr. Amt. 31-Dec Unearned Revenue    2,500.00    Srervice Revenue    2,500.00 (To record the services provided in 2004) If this entry is not passed then Current Liabilities (Unearned Revenue) will be overstated by $2,500.

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