Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Adjusting Entries: Unearned Revenue

Financial Accounting

3. Accrual Accounting Concepts

Adjusting Entries: Unearned Revenue

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Multiple Choice

In May, the Party Company received $4,000 as a deposit for a party that was occurring in November. In October, the Party Company received a $5,000 deposit for a party occurring in February of the following year. The company recorded both of these payments into the Unearned Revenue account and did not adjust the account after recording the payments. The adjusting entry at December 31 would include:

Debit Revenue $4,000; Credit Unearned Revenue $4,000

Credit Revenue $4,000; Debit Unearned Revenue $4,000

Debit Revenue $9,000; Credit Unearned Revenue $9,000

Credit Revenue $9,000; Debit Unearned Revenue $9,000

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Verified step by step guidance

Identify the nature of the transactions: The Party Company received deposits for future services, which are initially recorded as Unearned Revenue, a liability, because the service has not yet been provided.

Determine the time frame for revenue recognition: The $4,000 deposit received in May is for a party in November, which means by December 31, the service has been provided, and the revenue should be recognized. The $5,000 deposit received in October is for a party in February of the following year, so it should remain as Unearned Revenue.

Calculate the amount of revenue to be recognized by December 31: Since the party for the $4,000 deposit has occurred by December 31, this amount should be recognized as revenue.

Prepare the adjusting journal entry: To recognize the $4,000 as revenue, you need to debit Unearned Revenue and credit Revenue. This reflects the decrease in liability and the increase in earned revenue.

Review the options provided: The correct adjusting entry should be 'Debit Unearned Revenue $4,000; Credit Revenue $4,000' to properly reflect the recognition of revenue for the party that occurred in November.