Final answer:
The unearned revenue on the Year 2 balance sheet for Accounting Associates would be $700, calculated by deducting the revenue recognized for services provided up to the end of Year 1 from the total amount collected for the entire service period.
Step-by-step explanation:
The question pertains to the accounting concept of unearned revenue and requires an understanding of revenue recognition principles. Accounting Associates received $1,200 cash on August 1 of Year 1 for consulting services that will be provided over the next year. Since the company’s fiscal year ends on December 31, by that time, five months of services have been provided, leaving seven months worth of services to be provided in Year 2. The unearned revenue at the end of Year 1 (on December 31) would be the amount collected minus the revenue recognized for services provided up to that date.
To calculate the unearned revenue as of Year 2 balance sheet:
- Calculate the monthly service revenue: $1,200 annual payment / 12 months = $100 per month.
- Calculate the revenue recognized by the end of Year 1: $100 per month × 5 months = $500.
- Determine the unearned revenue at the beginning of Year 2: $1,200 - $500 = $700
Therefore, the amount of unearned revenue appearing on the Year 2 balance sheet would be $700.