Question

Barry Company received $8,000 full payment in advance for services that are 60% complete at the end of the period. The adjusting entry will?

1) debit Unearned Revenue for $4,800 and credit Fees Earned for $4,800.
2) debit Fees Earned for $4,800 and credit Unearned Revenue for $4,800.
3) debit Unearned Revenue for $8,000 and credit Fees Earned for $8,000.
4) debit Cash for $4,800 and credit Fees Earned for $4,800.

Answer 1

The correct adjusting entry for services that are 60% complete at Barry Company would be to debit Unearned Revenue for $4,800 and credit Fees Earned for $4,800, reflecting the earned portion of the advance payment.

Step-by-step explanation:

When Barry Company receives $8,000 in advance for services, it records this as Unearned Revenue, which is a liability on the balance sheet. As services are performed, this liability is reduced, and the company recognizes revenue. Since the services are 60% complete, Barry Company should recognize 60% of the payment as revenue.

The correct adjusting entry to record the revenue earned for the percentage of services completed would be to debit Unearned Revenue for $4,800 (which is 60% of $8,000) and credit Fees Earned (or Revenue) for $4,800. This reflects that the company has earned some of the payment it received in advance. To summarize, the adjusting entry will debit Unearned Revenue for $4,800 and credit Fees Earned for $4,800.