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20 June, 07:40

Tao co. Receives $10,000 cash in advance for four months of legal services on october 1, 2016, and records it by debiting cash and crediting unearned revenue both for $10,000. It is now december 31, 2016, and tao has provided legal services as planned. What adjusting entry should tao make to account for the work performed from october 1 through december 31, 2016?

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  1. 20 June, 07:42
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    Adjusting entry to account for the work performed from October 1 through December 31, 2016:

    It is given that Tao co. Receives $10,000 cash in advance for four months of legal services on October 1, 2016, and records it by debiting cash and crediting unearned revenue both for $10,000.

    It is now December 31, 2016, and tao has provided legal services as planned so now we need to recognize the revenue for the period of Oct 1 to Dec. 31 (3 months), which shall be (10000*3/4) = $7,500

    The Adjusting entry account for the work performed from October 1 through December 31, 2016, shall be as follows:

    Unearned revenue Debit $7,500

    Revenue Credit $7,500

    (Being adjustment made for the revenue earned)
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