Question

Question: Ricardo Construction began operations on December 1. In setting up its accounting procedures, the

company decided to debit expense accounts when it prepays its expenses and to credit revenue accounts

when customers pay for services in advance. Prepare journal entries for itemsathroughdand the adjusting

entries as of its December 31 period-end for itemsethroughg. (Entries can draw from the following

partial chart of accounts: Cash; Accounts Receivable; Interest Receivable; Supplies; Prepaid

Insurance; Unearned Remodeling Fees; Remodeling Fees Earned; Supplies Expense; Insurance

Expense; Interest Expense.)

a. Supplies are purchased on December 1 for \(2,000 cash.

b. The company prepaid its insurance premiums for \)1,540 cash on December 2.

c. On December 15, the company receives an advance payment of \(13,000 cash from a customer for remodeling

work.

d. On December 28, the company receives \)3,700 cash from another customer for remodeling work to be

performed in January.

e. A physical count on December 31 indicates that the company has \(1,840 of supplies available.

f. An analysis of the insurance policies in effect on December 31 shows that \)340 of insurance coverage

had expired.

g. As of December 31, only one remodeling project has been worked on and completed. The $5,570 fee

for this project had been received in advance and recorded as remodeling fees earned.

Short answer

The cash account is debited and service revenue credited with $3,700

Step-by-step solution

Definition of service revenue

The amount received from the services rendered is known as service revenue.

Entry for the service revenue

	Journal entry
Date	Particular	Debit	Credit
December 28	Cash	$3,700
	Service Revenue		$3,700
	(Being entry for the service revenue received in advance)