Question

At the beginning of the year, Posh Advertising owed customers $ 2,700 for unearned revenue collected in advance. During the year, Posh received advance cash receipts of $ 7,300 and earned $ 30,000 of service revenue (exclusive of any amount earned from advance payments). At year-end, the liability for ­unearned revenue is $ 3,500 and unadjusted service revenue is $ 30,000.

Requirements
1. Record the adjusting entry assuming that Posh records the cash receipt of unearned revenue by initially crediting a liability account. Post the adjusting entry to the Unearned Revenue and Service Revenue T-accounts. Make sure to include the beginning balance and additional unearned revenue in the Unearned Revenue T-account.
2. Record the adjusting entry assuming that Posh records the cash receipt of unearned revenue by initially crediting a revenue account. Post the adjusting entry to the Unearned Revenue and Service Revenue T-accounts. Make sure to include the beginning balance in the Unearned Revenue T-account and the additional unearned ­revenue in the Service Revenue T-account.
3. Compare the ending balances of the T-accounts under both approaches. Are they the same?



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  • CreatedJanuary 16, 2015
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