Questions
MCD2160 - T3 - 2025 MCD2160: Mid Test Practice Quiz
Single choice
A business received advance payments for services of $120,000 in February 2021 and it was recorded as revenue. By 30 June 2021 only 40% of the required services had been provided to the customers. To comply with the accrual accounting principle, which of the following entries is required at balance day, 30 June 2021?
Options
A.a. Decrease Unearned Revenue $48,000 Increase Fees Revenue $48,000
B.b. Decrease Fees $72,000 Increase Unearned Revenue $72,000
C.c. Increase Accrued Revenue $48,000 Increase Fees Revenue $48,000
D.d. Increase Bank $120,000 Decrease Accrued Revenue $48,000Cr Unearned Revenue $72,000
E.e. Decrease Unearned Revenue $72,000 Increase Fees Revenue $72,000
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Step-by-Step Analysis
Context: The business initially recorded advance payments of 120,000 as revenue in February 2021. By 30 June 2021 only 40% of the services had been provided, so only 40% of the 120,000 (i.e., 48,000) should be recognized as revenue. The remaining 72,000 should be recorded as a liability (unearned revenue) until the services are delivered. The journal entry needed at balance day is a reversal of the portion previously recognized as revenue and a transfer to unearned revenue.
Option a: Decrease Unearned Revenue $48,000; Increase Fees Revenue $48,000. Explanation: This would imp......Login to view full explanationLog in for full answers
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