Question

During June, Bravo Magazine sold for cash six advertising spaces for $400 each to be run in the July through December issues. On that date, Bravo properly recognized Unearned Revenue. The adjusting entry to record on July 31 includes:

a) a debit to Cash for $2,000
b) a debit to Unearned Revenue for $400
c) a credit to Revenue for $2,000
d) a credit to Unearned Revenue for $400

Answer 1

b.

Step-by-step explanation:

The company sold 6 advertising spaces that would run from July to December for $400 each.

Total amount received for selling 6 advertising spaces = 6×$400

Total amount received for selling 6 advertising spaces = $2,400

The advertising spaces will run for 6 months i.e., July to December.

So, adjusting entry on 31st July would record the revenue earned for 1 month only.

Total revenue = $2,400

No. of months = 6

Revenue for 1 month = $2,400/6

Revenue for 1 month = $600

Thus, journal entry on receipt of cash as well as adjusting journal entry has been shown below: