Question

Record journal entries for bothof the following transactions.

(a) On December 1, $18,000 was received for a service contract to be performed from December 1 through April 30.

(b) Assume the work is performed evenly throughout the contract period, prepare the adjusting journal entry on December 31

Date	Account Titles	Debits	Credits

Answer 1

Solution:

Journal Entries

a)--- On Dec 1, $18,000 was received for a service contract to be performed from Dec 1 through April 30. Since contract is not performed on Dec 1, we cannot record Service Revenue on Dec 1, so we will record receipt of $18,000 as Unearned Service Revenue as liability and Debit Cash with $18,000

Date	Accounts	Debit	Credit
Dec.1	Cash	$18,000
	Unearned Service Revenue		$18,000

(b) Assume the work is performed evenly throughout the contract period, prepare the adjusting journal entry on December 31

The service revenue is recorded as soon as the contract is performed. Since work is performed evenly throughout the period of contract, we will record service revenue at the end of each month.

Total Number of Months in which contract work will be completed from Dec 1 to April 30 = 5 Months

So, at the end of Dec 31, one month service revenue should be recorded.

Date	Accounts	Debit	Credit
Dec.31	Unearned Service Revenue ($18,000*1/5)	$3,600
	Service Revenue		$3,600

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