Question

On July 1, 2022, Wildhorse Co. pays $19,500 to Blossom Company for a 2-year insurance contract. Both companies have fiscal years ending December 31. Journalize the entry on July 1 and the adjusting entry on December 31 for Blossom Company. Blossom uses the accounts Unearned Service Revenue and Service Revenue.

Answer 1

On July 1, Blossom Company should record the receipt of $19,500 from Wildhorse Co. as a liability in the Unearned Service Revenue account. On December 31, an adjusting entry should be made to recognize the earned portion of the service revenue.

Step-by-step explanation:

On July 1, Blossom Company should record the receipt of $19,500 from Wildhorse Co. as a liability in the Unearned Service Revenue account. The entry should be:

July 1:

• Debit Unearned Service Revenue $19,500
• Credit Cash $19,500

On December 31, Blossom Company needs to recognize the earned portion of the service revenue. This is done by making an adjusting entry:

December 31:

• Debit Unearned Service Revenue $9,750
• Credit Service Revenue $9,750