Final answer:
The correct option is C). The revenue recognized in Year 1 for Zeta Company's service is based on the three months of service provided out of the one-year contract period, resulting in $300 to be reported on the Year 1 income statement.
Step-by-step explanation:
The student's question is related to the recognition of revenue in accounting, specifically regarding how to report income when cash is received for services that will be provided over a certain period. Since Zeta Company collected $1,200 cash on October 1 for services to be provided over one year, and the fiscal year ends on December 31, only three months of service have been provided in Year 1.
The portion of the $1,200 that applies to Year 1 is calculated on a pro-rata basis for the three months out of the twelve-month service period:
($1,200 / 12 months) x 3 months = $300. Therefore, the amount of revenue appearing on the Year 1 income statement would be $300 (Option C).