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On December 1, Simpson Marketing Company received $2,700 from a customer for a marketing plan to be completed January 31 of the following year. The cash receipt was recorded as unearned fees. The adjusting entry for the year ended December 31 would include:

a.a debit to Earned Fees for $2,700.
b.a debit to Unearned Fees for $1,350.
c.a credit to Unearned Fees for $900.
d.a credit Earned Fees for $1,800.
e.a debit to Earned Fees for $1,800.

Answer 1

Remember that according to the accrual concept, the advances received are not earnings until you have delivered you consideration. This means that the revenue would be only that part of the advances received which we have compensated by our consideration. Consideration means any product or service which has a monetary value. The consideration here requires to be delivered in three months time. Here the year end is 31 December so the amount that must appear as revenue in the year must be 1 month share out of 2 months total ($2700 * 1/2 = $1350).

So the entry would be to decrease in the unearned fees which is liability (must be Debited) and an increase in the Earned Fees (Revenue increases are always Credited) by amount $1350.

Dr Unearned fee $1350

Cr Earned Fees $1350

So the option d by seeing the entries mentioned above, is correct answer.