Final answer:
The service revenue recognized in Year 1 would be $35,000, which represents five months of the services provided. The cash flow from operating activities would show the full amount collected, which is $84,000.
Step-by-step explanation:
Based on the information provided, Carson Company collected $84,000 for services on August 1, Year 1, to be provided over the next year. Since the company's fiscal closing date is December 31, only five months of service from August to December (5/12 of the year) will be recognized in Year 1 financial statements.
Thus, the amount of service revenue recognized in Year 1 would be:
Service Revenue Year 1 = $84,000 × (5 months / 12 months) = $35,000
For the cash flow from operating activities, the full $84,000 is considered, as this cash was collected and is available for use by the company during Year 1.
Therefore, in the Year 1 financial statements, the service revenue would be $35,000, and the cash flow from operating activities would show the full amount collected of $84,000.