Question

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

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

Step-by-step solution

Definition of unearned service revenue

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

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)

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