On October 1, A Client Pays A Company The Full $12,000 Balance Of A Year-Long Contract. Using The Accrual Method, What's The Unearned Revenue As Of December 31?

Solution Of Multiple Choice Question (MCQ)

The correct answer is d). $9000, as the client paid the company the full $12000 ($1000 per month) which is $9000 for 9 months from 1^st January to 30^th September. The Revenue earned by the company for 3 months (1^st October to 31^st December) is $3000. So remaining $9000 is Unearned Revenue as the services yet to be performed for the 9 remaining months from 1^st January to 30^th September against which the company received the payment.

The adjusting entry to record unearned revenue for 31^st December is shown below:

                       Unearned Revenue a/c  $3000

 

                                                              Revenue a/c  $3000

 

                            (Unearned Revenue Now Earned For The Period Of 3 Months)

The balance of Unearned Revenue is $9000 on 31^st December i.e., $12000 - $3000 = $9000.