In: Accounting
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.
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) |