On Dec 12, 2020, Ivory Coast, CGA, received $ 5,000 from a customer as an advance payment for accounting work to be done. The payment was credited to Service Revenue. Thirty percent of the work was performed in December 2020, with the rest to be done in January 2021, at which time the customer will be billed. The required adjusting entry at December 31, 2020 (year end) is
A) Dr. Unearned Revenue $ 1,500, Cr. Service Revenue $ 1,500.
B) Dr. Service Revenue $ 1,500, Cr. Unearned Revenue $ 1,500.
C) Dr. Service Revenue $ 3,500, Cr. Unearned Revenue $ 3,500.
D) Dr. Unearned Revenue $ 3,500, Cr. Service Revenue $ 3,500.

Question

Quizplus · Accepted Answer

The initial entry incorrectly credited the entire $5,000 to Service Revenue. Since only 30% of the work was completed in December, $1,500 (30% of $5,000) should be recognized as revenue, and the remaining $3,500 should be recorded as Unearned Revenue. Therefore, the adjusting entry should debit Service Revenue and credit Unearned Revenue for $3,500.

On Dec 12, 2020, Ivory Coast, CGA, Received $ 5,000