Question

For a recent year, microsoft corporation (msft) reported short-term unearned revenue of $23,223 million. for the same year, microsoft also reported total revenues of $93,580 million.

a. assume that microsoft recognized $2,000 million of unearned revenue as revenue during the year, what entry for unearned revenue did microsoft make during the year

Answer 1

Given:
short-term unearned revenue of $23,223 million.
total revenues of $93,580 million.

assume that microsoft recognized $2,000 million of unearned revenue as revenue during the year

We only consider two figures in this problem. 1) 23,223 million short-term unearned revenue and the 2,000 million unearned revenue recognized as revenue for this year.

There are two ways of recognizing the unearned revenue and its corresponding adjusting entry is dependent on its initial recognition.

Liability method of Recording Unearned Revenue: (in millions)
Debit Credit
Cash 23,223
Unearned Revenue 23,223

Adjusting entry:
Unearned Revenue 2,000
Service Income 2,000

Income Method of Recording Unearned Revenue

Cash 23,223
Service Income 23,223

Adjusting Entry

Service Income 21,223
Unearned Income 21,223