Question

What adjustment is needed to reflect that $1,400 was earned by the end of the year in the unearned fee revenue account?

1) Debit the unearned fee revenue account by $1,400
2) Credit the unearned fee revenue account by $1,400
3) Debit the earned fee revenue account by $1,400
4) Credit the earned fee revenue account by $1,400

Answer 1

To account for $1,400 earned by the end of the year, debit the unearned fee revenue account and credit the fee revenue account by the same amount, reflecting a conversion from liability to earned revenue.

Step-by-step explanation:

To reflect that $1,400 was earned by the end of the year in the unearned fee revenue account, the correct adjustment would be to debit the unearned fee revenue account by $1,400. This is because unearned revenue represents a liability where the company owes a service or product to its clients. Once the service is provided or the product is delivered, the liability is reduced (debited) and revenue is recognized (credited).

The journal entry to record this earned revenue would be:

• Debit Unearned Fee Revenue: $1,400
• Credit Fee Revenue (or Earned Fee Revenue): $1,400

By making these entries, we are effectively moving the amount from the liability account (Unearned Fee Revenue) to the revenue account, reflecting that the earning process has been completed.