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On September​ 1, Advantage Maintenance Company contracted to provide monthly maintenance services for the next five months at a rate of​ $3,000 per month. The client paid Advantage​ $15,000 on September 1. The maintenance services began on that date. Assuming Advantage records deferred revenues using the alternative​ treatment, what would be the adjusting entry recorded on December​ 31?

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Answer:

Adjusting Entry

December 31,

Dr. Service Revenue     $3,000

Cr. Unearned Revenue $3,000

Explanation:

Using alternate treatment the cash received in advance is recorded as the revenue initially.

On September following entry was performed

Dr. Cash        $15,000

Cr. Revenue $15,000

At the end of the year services of 4 months have been performed and the amount of one month's service is received in advance until this date. It needs to be adjusted according to the accrual concept.

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