Final answer:
The correct adjusting entry for recognizing $400 out of a $1000 payment as earned revenue would be to debit Unearned Revenue and credit Revenue, reflecting the portion of services that has been provided by the end of the year.
Step-by-step explanation:
The student received a payment of $1000 on December 1st for services, and by the end of the year, $400 of those services were earned. The correct adjusting entry on December 31st to reflect the earned revenue would involve recognizing the earned portion of the payment and the unearned portion that will be earned in the future.
The necessary adjusting entry would be:
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- Debit Unearned Revenue $400
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- Credit Revenue $400
This entry decreases the liability account 'Unearned Revenue' and increases the 'Revenue' account on the income statement, representing what has actually been earned by the year-end.