On January 1, 2009, the law firm of Coats and Alday was formed with a contribution from each of the partners of $25,000. On February 1, 2009, the company received $24,000 from clients in advance for services to be performed monthly during the next 12 months beginning in February and recorded the full amount as unearned revenue. During the year, the firm incurred and paid expenses of $7,000. Is the adjustment to recognize the proper amount of service revenue related to an accrual or a deferral? Assuming that these were the only transactions completed in 2009, prepare the firm’s income statement, statement of cash flows, statement of retained earnings for the year ended December 31, 2009, and balance sheet at December 31, 2009.
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