Final answer:
The unearned revenue on the Year 2 balance sheet will be $700, which is the amount for the remaining 7 months of consulting services not yet provided by the end of Year 1.
Step-by-step explanation:
On August 1 of Year 1, Accounting Associates collected $1,200 cash for consulting services to be provided for one year beginning immediately.
By Year 2, specifically on the balance sheet for December 31 of Year 1, part of this revenue would have been recognized, and part would still be unearned. The period from August 1 of Year 1 to December 31 of Year 1 accounts for 5 months.
Therefore, 5 months' worth of revenue would have been recognized, leaving 7 months' worth as unearned, since the services are to be provided for one year starting from August 1 of Year 1.
To calculate the unearned revenue for Year 2, we would take the total amount of cash collected ($1,200) and divide it by 12 to get the monthly revenue, which would be $100 per month.
Multiplying this monthly revenue by the remaining 7 months that the services will be provided in Year 2, we get $700 ($100 per month × 7 months) as the unearned revenue that would appear on the Year 2 balance sheet.