Question

A customer paid $54000 to Concord Marketing on December 30, 2020, to perform services from January 1, 2021 through December 31, 2024. If Concord fails to record the revenue that should be recognized, ________ would be understated by ________ each year.

Answer 1

Net income, $13,500

Step-by-step explanation:

When an amount is received in advance for service yet to be rendered, revenue is not recognized until it is earned. The total amount paid is to be earned over 4 years. As such, the amount to be earned yearly

= $54,000/4

= $13,500

If this amount is not recorded yearly by crediting revenue and debiting deferred or unearned revenue, the net income will be understated by $13,500 each year.