Question

Prepare any necessary adjusting entries at December 31, 2017, for Piper Company’s year-end financialstatements 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.

Short answer

1. Sales tax payable will be $400.
2. The unearned service revenue account is debited with $50,000 and the earned service revenue account is credited with $50,000.

Step-by-step solution

Definition of unearned revenue

An unearned revenue is a revenue that is received in advance.

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)

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

Necessary adjusting entries

Date	Particulars	Debit	Credit
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 second entry is passed on by recording the cost of the merchandise inventory.

The third entry is passed to the earned service revenue.