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Chapter 3: Q3-11QS_a (page 141)

a. Tao Co. receives \(10,000 cash in advance for four months of legal services on October 1, 2017, and
records it by debiting Cash and crediting Unearned Revenue both for \)10,000. It is now December 31,
2017, and Tao has provided legal services as planned. What adjusting entry should Tao make to
Account for the work performed from October 1 through December 31, 2017?
b. A. Caden started a new publication called Contest News. Its subscribers pay $24 to receive 12 monthly
issues. With every new subscriber, Caden debits Cash and credits Unearned Subscription Revenue for
the amounts received. The company has 100 new subscribers as of July 1, 2017. It sends Contest News
to each of these subscribers every month from July through December. Assuming no changes in subscribers,
prepare the journal entry that Caden must make as of December 31, 2017, to adjust the
Subscription Revenue account and the Unearned Subscription Revenue account.

Short Answer

Expert verified

Unearned legal services account debit and legal service revenue credit with $7,500

Step by step solution

01

Definition of unearned service revenue

Unearned service revenue is the revenue that is received in advance.

02

Adjusting entry for unearned service revenue

	Journal entry
Date	Particulars	Debit	Credit
December 31, 2017	Unearned Legal Services Revenue	$7,500
	Legal Services Revenue		$7,500
	(Being adjusting entry for the unearned legal services revenue)

$Legal Service Revenue = Total Revenue \times Number of Months = $ 10, 000 \times \frac{3}{4} = $ 7, 500$

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Most popular questions from this chapter

In the blank space beside each numbered balance sheet item, enter the letter of its balance sheet classification. If the item should not appear on the balance sheet, enter a Z in the blank.

A. Current assets

B. Long-term investments

C. Plant assets

D. Intangible assets

E. Current liabilities

F. Long-term liabilities

G. Equity

5. Taxes payable

What is a company’s operating cycle?

Adjusting entries affect at least one balance sheet account and at least one income statement account.

For the entries below, identify the account to be debited and the account to be credited from the following

accounts: Cash; Accounts Receivable; Prepaid Insurance; Equipment; Accumulated

Depreciation; Wages Payable; Unearned Revenue; Revenue; Wages Expense; Insurance Expense;

Depreciation Expense. Indicate which of the accounts is the income statement account and which is

the balance sheet account.

a. Entry to record revenue earned that was previously received as cash in advance.

b. Entry to record wage expenses incurred but not yet paid (nor recorded).

c. Entry to record revenue earned but not yet billed (nor recorded).

d. Entry to record expiration of prepaid insurance.

e. Entry to record annual depreciation expense.

Prepare adjusting journal entries for the year ended (date of) December 31, 2017, for each of these separate situations.

(Entries can draw from the following partial chart of accounts: Cash; Accounts Receivable; Supplies;

Prepaid Insurance; Equipment; Accumulated Depreciation—Equipment; Wages Payable; Unearned Revenue;

Revenue; Wages Expense; Supplies Expense; Insurance Expense; Depreciation Expense—Equipment.)

a. Depreciation on the company’s equipment for 2017 is computed to be \(18,000.

b. The Prepaid Insurance account had a \)6,000 debit balance at December 31, 2017, before adjusting for

the costs of any expired coverage. An analysis of the company’s insurance policies showed that \(1,100

of unexpired insurance coverage remains.

c. The Office Supplies account had a \)700 debit balance on December 31, 2016; and \(3,480 of office

supplies were purchased during the year. The December 31, 2017, physical count showed \)300 of supplies

available.

d. Two-thirds of the work related to \(15,000 of cash received in advance was performed this period.

e. The Prepaid Insurance account had a \)6,800 debit balance at December 31, 2017, before adjusting for the

costs of any expired coverage. An analysis of insurance policies showed that \(5,800 of coverage had expired.

f. Wage expenses of \)3,200 have been incurred but are not paid as of December 31, 2017.

In the blank space beside each numbered balance sheet item, enter the letter of its balance sheet classification. If the item should not appear on the balance sheet, enter a Z in the blank.

A. Current assets

B. Long-term investments

C. Plant assets

D. Intangible assets

E. Current liabilities

F. Long-term liabilities

G. Equity

14. Buildings

See all solutions

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