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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

Expert verified

The service revenue account is debited and unearned service revenue credited with $11,260

Step by step solution

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01

Definition of service revenue

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

02

Entry for the service revenue


Journal entry



Date

Particular

Debit

Credit

December 31

Service Revenue

$11,260



Unearned Service Revenue


$11,260


(Being entry for the service revenue received in advance)



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Most popular questions from this chapter

Question:Prepare year-end adjusting journal entries for M&R Company as of December 31, 2017, for each of the

following separate cases. (Entries can draw from the following partial chart of accounts: Cash; Accounts

Receivable; Interest Receivable; Equipment; Wages Payable; Salary Payable; Interest Payable; Lawn

Services Payable; Unearned Revenue; Revenue; Interest Revenue; Wages Expense; Salary Expense;

Supplies Expense; Lawn Services Expense; Interest Expense.)

a. M&R Company provided \(2,000 in services to customers that are expected to pay the company sometime

in January following the companyโ€™s year-end.

b. Wage expenses of \)1,000 have been incurred but are not paid as of December 31.

c. M&R Company has a \(5,000 bank loan and has incurred (but not recorded) 8% interest expense of

\)400 for the year ended December 31. The company will pay the \(400 interest in cash on January 2

following the companyโ€™s year-end.

d. M&R Company hired a firm to provide lawn services at a monthly fee of \)500 with payment occurring

on the 15th of the following month. Payment for December services will occur on January 15

following the companyโ€™s year-end.

e. M&R Company has earned \(200 in interest revenue from investments for the year ended December

31. The interest revenue will be received on January 15 following the companyโ€™s year-end.

f. Salary expenses of \)900 have been earned by supervisors but not paid as of December 31.

Question: Why is the accrual basis of accounting generally preferred over the cash basis?

What contra account is used when recording and reporting the effects of depreciation? Why is it used?

What is a companyโ€™s operating cycle?

Question: For each case below, follow the three-step process for adjusting the unearned revenue liability

account on December 31. Step 1: Determine what the current account balance equals. Step 2: Determine

what the current account balance should equal. Step 3: Record the December 31 adjusting entry to get

from step 1 to step 2. Assume no other adjusting entries are made during the year.

a. Unearned Rent Revenue. The Krug Company collected \(6,000 rent in advance on November 1, debiting

Cash and crediting Unearned Rent Revenue. The tenant was paying 12 monthsโ€™ rent in advance

and occupancy began November 1.

b. Unearned Services Revenue. The company charges \)75 per month to spray a house for insects. A

customer paid \(300 on October 1 in advance for four treatments, which was recorded with a debit to

Cash and a credit to Unearned Services Revenue. At year-end, the company has applied three treatments

for the customer.

c. Unearned Rent Revenue. On September 1, a client paid the company \)24,000 cash for six months of

rent in advance (the client leased a building and took occupancy immediately). The company recorded

the cash as Unearned Rent Revenue.

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