Question

Eaton Co. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to Unearned Service Revenue. This account had a balance of $3,800,000 at December 31, 2014 before year-end adjustment. Service contract costs are charged as incurred to the Service Contract Expense account, which had a balance of $900,000 at December 31, 2014. Service contracts still outstanding at December 31, 2014 expire as follows: During 2015 $960,000 During 2016 1,140,000 During 2017 700,000 What amount should be reported as Unearned Service Revenue in Eaton's December 31, 2014 balance sheet?

Answer 1

The amount that Eaton co would report as unearned service revenue in the balance sheet would be $2,800,000.

Step-by-step explanation:

Unearned service revenue is the cash receipts received from the contracts for which the work or service hasn't been performed yet. This the liability for the Eaton co, and they will debit the cash received and credit the unearned service contract.

For calculating the unearned service revenue , we will add all the outstanding service contracts from all the years.

= $ 960,000 + $1140,000 + $700,000

= $2,800,000