Sweet Air Flow sells prepaid HVAC contracts. When a contract is sold, cash is debited and...

Sweet Air Flow sells prepaid HVAC contracts. When a contract is sold, cash is debited and contract revenue is credited. As of December 31, 2020, the year end, the following information was available regarding contract sales:

Date Sold Amount Contract Term

August 1 $72,000 1 year

October 1 $69,600 6 months

November 1 $42,000 3 months

The unadjusted balance of unearned contract revenue has a credit balance of $10,000. This represents contracts that expired during 2020. Give the adjusting entry needed for contract revenue.

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Sweet Air Flow
Calculation of unearned revenue:
Date Sold	Amount	Term	Monthly amount	No. of Unearned Months	Unearned Months	Unearned Revenue
1-Aug	72,000.00	1 Year	6,000.00	1.00	Jan-21	6,000.00
1-Oct	69,600.00	6 Months	11,600.00	3.00	Mar-21	34,800.00
1-Nov	42,000.00	3 Months	14,000.00	1.00	Jan-21	14,000.00
				Total		54,800.00


Adjusting entry
Account	Debit $	Credit $
Unearned contract revenue	10,000.00
Contract revenue		10,000.00

Contract revenue	54,800.00
Unearned contract revenue		54,800.00

ekkarill92 answered 2 years ago

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