Question

Paramount Event Planning Services collects fees from its customers in advance. On January 1, 2017, the balance of its Unearned Revenue account was $6,000 (CR). During January and February, the company collected $4,000 and $8000 as advance fees. During the two-month period, it performed services of $5,500 related to the deferred revenue. What is the balance in Unearned Revenue at the end of February?

A. credit balance of $5,300
B. credit balance of $18,000
C. credit balance of $12,500
D. credit balance of $1,500
E. None of the above

Answer 1

The balance in Unearned Revenue at the end of February is a credit balance of $12,500, calculated by adding the advance fees collected to the starting balance, and then subtracting the revenues earned from these prepayments.

Step-by-step explanation:

The balance in Unearned Revenue at the end of February can be calculated as follows:Starting balance of Unearned Revenue on January 1, 2017: $6,000 (CR).Advance fees collected during January and February: $4,000 + $8,000 = $12,000.Total Unearned Revenue after collections: $6,000 + $12,000 = $18,000.Services performed related to the deferred revenue: $5,500.Unearned Revenue balance at the end of February:$18,000 - $5,500 = $12,500 (CR).Therefore, the correct answer is C. credit balance of $12,500.

To determine the balance in Unearned Revenue at the end of February, we need to consider the transactions involving advance fees and the services performed.Starting with the initial balance of $6,000 (CR) and adding the collections of $4,000 and $8,000 for January and February respectively, we have a total of $18,000 (CR).However, the company also performed services worth $5,500 related to the deferred revenue. To adjust for this, we subtract the $5,500 from the balance, leaving us with a final balance of $12,500 (CR) at the end of February. Therefore, the correct answer is option C, a credit balance of $12,500.