Final answer:
By the end of Year 1, Zoe Company will report $1,050 as service revenue and $750 as unearned revenue on its financial statements, reflecting 7 months of services provided and 5 months to be provided in Year 2, respectively.
Step-by-step explanation:
The amount of unearned revenue and service revenue to be shown on the Year 1 financial statements can be computed based on the cash collected and the services provided within the fiscal year. Zoe Company collected $1,800 on June 1 for medical services to be rendered evenly over a year. From June 1 to December 31 (Year 1), there are 7 months of services that would have been provided by year-end.
Here is the calculation for unearned revenue by December 31, Year 1:
- Monthly service revenue: $1,800 / 12 months = $150 per month
- Revenue recognized by December 31 (7 months): $150 * 7 = $1,050
Thus, by the end of Year 1, the service revenue reported will be $1,050, and the remaining unearned revenue will be $750 ($1,800 - $1,050) since these represent the services to be provided over the next 5 months in Year 2.