The Unearned Consulting Revenue account has a balance of $261,220 as of December 31, 2015. On...

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.

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Expert Solution

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)

ekkarill92 answered 8 months ago

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