Question

Question: Prepare any necessary adjusting entries on December 31, 2017, for Piper Company’s year-end financial statements for each of the following separate transactions and events.

1. Piper Company records a year-end entry for $10,000 of previously unrecorded cash sales (costing $5,000) and its sales taxes at a rate of 4%.

2. The company earned $50,000 of $125,000 previously received in advance and originally recorded as unearned services revenue

Answer 1

Step 1: Definition of unearned revenue

The unearned revenue is the revenue that is received in advance. The unearned revenue is recognized as the revenue in that in which the amount of revenue becomes due. The unearned revenue is treated as a liability on the balance sheet.

Step 2: Necessary adjusting entries

Date	Particulars	Debit	Credit
December 31, 2017	Cash	$10,400
	Sales		$10,000
	Sales Tax Payable		$400
	(To record the cash sales and its sales tax)
December 31, 2017	Cost of Goods Sold	$5,000
	Merchandise Inventory		$5,000
	(To record the cost of sales)
December 31, 2017	Unearned Service Revenue	$50,000
	Earned Service Revenue		$50,000
	(To record the unearned service revenue earned)

 

The first entry is passed on recording the cash sales and the payment of sales tax.

The second entry is passed on by recording the cost of the merchandise inventory.

The third entry is passed to earned service revenue.

The unearned service revenue account is debited with $50,000 and the earned service revenue account is credited with $50,000