Question

Tao co. Receives $10,000 cash in advance for 4 months of legal services on october 1, 2015, and records it by debiting cash and crediting unearned revenue both for $10,000. It is now december 31, 2015, 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, 2015?

Answer 1

Adjusting entry for Service Revenue earned:

It is given that Tao co. Receives $10,000 cash in advance for 4 months of legal services on October 1, 2015, and records it by debiting cash and crediting unearned revenue both for $10,000.

It is now December 31, 2015, and Tao has provided legal services as planned. So the company needs to record the Revenue Earned for the period (Oct 1 to Dec. 31) that is 3 months = 10,000*3/4 = $7,500

The adjusting entry to account for the work performed from October 1 through December 31, 2015 shall be as follows:

Unearned Revenue Debit $7,500

Revenue Credit $7,500

(Being adjustment made for the Revenue earned)