Beck Inc. and Bryant Inc. have the following operating data: Beck Inc. Bryant Inc. Sales $219,400 $585,000 Variable costs 88,000 351,000 Contribution margin $131,400 $234,000 Fixed costs 58,400 39,000 Income from operations $73,000 $195,000
a. Compute the operating leverage for Beck Inc. and Bryant Inc. If required, round to one decimal place. Beck Inc. fill in the blank 1 Bryant Inc. fill in the blank 2
b. How much would income from operations increase for each company if the sales of each increased by 15%? If required, round answers to nearest whole number. Dollars Percentage Beck Inc. $fill in the blank 3 fill in the blank 4 % Bryant Inc. $fill in the blank 5 fill in the blank 6 %
c. The difference in the of income from operations is due to the difference in the operating leverages. Beck Inc.'s operating leverage means that its fixed costs are a percentage of contribution margin than are Bryant Inc.'s.
Answer:
Beck Inc. and Bryant Inc.
Beck Inc. Bryant Inc.
a. Operating leverage 0.4 0.1
b. Increase in income $19,710 (27%) $35,100 (18%)
c. The difference in the INCREASE of income from operations is due to the difference in the operating leverages. Beck Inc.'s HIGHER operating leverage means that its fixed costs are a HIGHER percentage of contribution margin than are Bryant Inc.'s.
Explanation:
a) Data and Calculations:
Beck Inc. Bryant Inc.
Sales $219,400 $585,000
Variable costs 88,000 351,000
Contribution margin $131,400 $234,000
Fixed costs 58,400 39,000
Income from operations $73,000 $195,000
Total costs $146,400 $390,000
Operating leverage 1.8 1.2
Operating leverage = Contribution Margin/Income from operations
Increase in Sales by 15%
Beck Inc. Bryant Inc.
Sales $252,310 $672,750
Variable costs 101,200 403,650
Contribution margin $151,110 $269,100
Fixed costs 58,400 39,000
Income from operations $92,710 $230,100
Increase in income $19,710 (27%) $35,100 18%
Beagle Corporation has 26,000 shares of $10 par common stock outstanding and 16,000 shares of $100 par, 5.50% cumulative, nonparticipating preferred stock outstanding. Dividends have not been paid for the past two years. This year, a $420,000 dividend will be paid. What are the dividends per share payable to preferred and common, respectively
Answer:
$16.5 per share; $6 per share
Explanation:
Calculation to determine the dividends per share payable to preferred and common, respectively
DIVIDENDS PER SHARE PAYABLE TO PREFERRED
First step
Total dividend paid to Preferred Stockholders
= Outstanding preferred stock × Par value of preferred stock × 5.50% × Number of years
Total dividend paid to Preferred Stockholders= 16000 × 100 × 5.50% × 3
Total dividend paid to Preferred Stockholders= $264,000
Second step
Total dividend per share paid to Preferred Stockholders= Total dividend paid to preferred ÷ No. of outstanding shares
Total dividend per share paid to Preferred Stockholders= $264,000 ÷ 16,000 shares
Total dividend per share paid to Preferred Stockholders= $16.5 per share
DIVIDENDS PER SHARE PAYABLE TO COMMON STOCKHOLDERS
First step
Total dividend paid to Preferred Stockholders
= Outstanding preferred stock × Par value of preferred stock × 5.50% × Number of years
Total dividend paid to Preferred Stockholders= 16000 × 100 × 5.50% × 3
Total dividend paid to Preferred Stockholders= $264,000
Second step
Total dividend per share paid to common Stockholders= (Dividend paid in the current year - Total dividend paid to preferred) ÷ Common stock outstanding shares
Total dividend per share paid to common Stockholders= ($420,000 - $264,000) ÷ 26,000
Total dividend per share paid to common Stockholders= $156,000 ÷ 26,000 shares
Total dividend per share paid to common Stockholders= 6 per share
Therefore the dividends per share payable to preferred and common, respectively is:
$16.5 per share; $6 per share
information of samriyan enterprises is given below.a)Started bussiness with Rs 20000 b) purchase good of Rs 15000 from Ram.c)Goods sold on cash Rs 18000 d)Cash paid Ram Rs 10000 e)A gain goods purchase from Ram of rs 20000 f) Paid to Ram Rs 24000 in full settlement of his account.Required a) journal entries
Answer:
a) Dr: Cash 20000
Cr: Equity/Capital 20000
b) Dr: Goods 15000
Cr: Payable 15000
c) Dr: Cash 18000
Cr: Sales 18000
d) Dr: Payable 10000
Cr: Cash 10000
e) Dr: Goods 20000
Cr: Payable 20000
f) Dr: Payable 30000
Cr: Cash 24000
Cr: Profit and Loss 6000
The following information comes from the accounts of James Company: Account Title Beginning Balance Ending Balance Accounts Receivable $ 34,700 $ 35,700 Allowance for Doubtful Accounts 1,520 2,720 Note Receivable 54,700 54,700 Interest Receivable 1,000 3,556 Required a. There were $182,700 of sales on account during the accounting period. Write-offs of uncollectible accounts were $1,800. What was the amount of cash collected from accounts receivable
Answer: $179,900
Explanation:
The amount of cash collected from accounts receivable will be calculated thus:
Account receivable at begining = $34700
Add: Sales on account = $182700
Less: Write-offs of uncollectible accounts = $1,800
Less: Account receivable at ending balance = $35700
Cash collected = $179,900
Show what happens to the firm's output choice and profit if the price of the product falls from $52 to $42. If the market price falls from $52 to $42, then the firm's output will decrease or increase from _____units to _____ units. (Enter your responses using integers.)
Answer: The firm's output will therefore decrease from 9 units to 8 units.
Explanation:
This firm most likely operates in a competitive market where price is the same as marginal revenue.
In such a market, firms will try to maximize output by selling at a level where Price is equal to Marginal cost and if they cannot get here, they try to make them as close as possible so long as marginal cost does not exceed price.
As this is the case, when the price was $52, the closest Marginal cost that isn't higher than price was $45 for an output level of 9 units.
If the product falls to $42, the closest marginal cost that isn't higher than the cost is $38 for 8 units.
The firm's output will therefore decrease from 9 units to 8 units.
Kraus Steel Company has two departments, Casting and Rolling. In the Rolling Department, ingots from the Casting Department are rolled into steel sheet. The Rolling Department received 46,300 tons from the Casting Department in October. During October, the Rolling Department completed 54,000 tons, including 11,900 tons of work in process on October 1. The ending work in process inventory on October 31 was 4,200 tons.
Required:
How many tons were started and completed during October?
Answer:
42,100 tons
Explanation:
Units Completed = Beginning Work in Process Units Completed + Units started & Completed during October
54,000 = 11,900 + Units started & Completed during October
Units started & Completed during October = 54,000 - 11,900
Units started & Completed during October = 42,100
So, the number of tons were started and completed during October is 42,100 tons.
Your grandfather has offered you a choice of one of the three following alternatives: $11,500 now; $5,700 a year for five years; or $71,000 at the end of five years. Use Appendix B and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.
Required:
a. Assuming you could earn 9 percent annually, compute the present value of each alternative.
b. Which alternative should you choose?
Answer:
1. $11,500
2. $22,171.01
3. $46,145.13
option 3. This is because it has the highest present value
Explanation:
Present value is the sum of discounted cash flows
Present value can be calculated using a financial calculator
option 2
Cash flow each year from year 1 to 5 = $5,700
I = 9
PV = 22,171,01
OPTION 3
Cash flow in year 5 = 71,000
I = 9
PV = 46,145.13
To determine PV using a financial calculator take the following steps:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
Which of the following types of mortgages would be most advantageous to have on your house if you expected the annual rate of inflation would be higher than most people thought?
a. reverse annuity mortgage
b. interest-only mortgage
c. adjustable-rate mortgage
d. fixed-rate mortgage
Answer:
d. fixed-rate mortgage
Explanation:
Inflation can be defined as the persistent general rise in the price of goods and services in an economy at a specific period of time.
Generally, inflation usually causes the value of money to fall and as a result, it imposes more cost on an economy.
On a related note, when the level of inflation is low in a particular country; their current account balance would be high. However, when the level of inflation is high; it results in low growth and as such increases the home country's current account balance, other things being equal (ceteris paribus).
Hence, if you anticipate a higher annual rate of inflation than most people thought, the fixed-rate mortgage would be most advantageous to have on your house because the interest is fixed or constant over the life of the mortgage loan.
A fixed-rate mortgage can be defined as an installment or fully amortizing mortgage loan that has a fixed (constant) interest rate that doesn't change throughout the entire duration of the loan.
This ultimately implies that, an equal amount of money is paid as principal and interest throughout the life of the mortgage loan.
Total direct operating margin less indirect expenses equals
Answer:
Total operating income.
Explanation:
Costing is the measurement of the cost of production of goods and services by assessing the fixed costs and variable costs associated with each step of production.
In Financial accounting, a direct cost can be defined as any expense which can easily be connected to a specific cost object such as a department, project or product. Some examples of direct costs are cost of raw materials, machineries or equipments.
On the other hand, any cost associated with the running, operations and maintenance of a company refers to indirect costs. Some examples of indirect costs are utility bill, office accessories, diesel etc.
In Financial accounting, the total operating income can be defined as the sum total of the profit of a business firm (company) after its regular, recurring costs and expenses have been deducted. Thus, it's the amount of revenue generated by a business firm (company) after subtracting all operating expenses and cost of goods sold (COGS).
Mathematically, the total operating income of a business is calculated by subtracting the indirect expenses incurred by the business firm from its total direct operating margin.
This ultimately implies that, total direct operating margin less indirect expenses equals total operating income.
On September 1, 2021, Hiker Shoes issued a $100,000, 8-month, noninterest-bearing note. The loan was made by Second Commercial Bank where the stated discount rate is 11% Hiker's effective interest rate on this loan (rounded) is: ____________
Answer: 11.87%
Explanation:
Effective interest rate on this loan is:
= Interest payment / (Note - Interest payment) * 12/8 months
Interest payment:
= Note * Interest rate * 8/12 months
= 100,000 * 11% * 8/12
= $7,333
Effective interest:
= 7,333 / (100,000 - 7,333) * 12/8
= 11.87%
The Rolling Department of Oak Ridge Steel Company had 3,600 tons in beginning work in process inventory (50% complete). During July, 59,500 tons were completed. The ending work in process inventory on July 31 was 3,000 tons (40% complete).
What are the total equivalent units for direct materials for July if materials are added at the beginning of the process?
Arndt, Inc. reported the following for 2021 and 2022 ($ in millions):
2021 2022
Revenues 888 980
Expenses 760 800
Pretax accounting income (income statement) 128 180
Taxable income (tax return) 116 200
Tax rate: 25%
a. Expenses each year include $30 million from a two-year casualty insurance policy purchased in 2021 for $60 million. The cost is tax deductible in 2021.
b. Expenses include $2 million insurance premiums each year for life insurance on key executives.
c. Arndt sells one-year subscriptions to a weekly journal. Subscription sales collected and taxable in 2021 and 2022 were $33 million and $35 million, respectively. Subscriptions included in 2021 and 2022 financial reporting revenues were $25 million ($10 million collected in 2020 but not recognized as revenue until 2021) and $33 million, respectively. Hint. View this as two temporary differences-one reversing in 2021; one originating in 2021.
d. 2021 expenses included a $14 million unrealized loss from reducing investments (classified as trading securities) to fair value. The investments were sold and the loss realized in 2022.
e. During 2020, accounting income included an estimated loss of $6 million from having accrued a loss contingency. The loss was paid in 2021, at which time it is tax deductible.
f. At January 1, 2021, Arndt had a deferred tax asset of $4 million and no deferred tax liability.
Required:
1. Which of the five differences described in items a-e are temporary and which are permanent differences?
2. Prepare a schedule that reconciles the difference between pretax accounting income and taxable income. Using the schedule, prepare the necessary journal entry to record income taxes for 2022.
3. Prepare a schedule that reconciles the difference between pretax accounting income and taxable income. (Amounts to be deducted should be indicated with a minus sign.
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Explanation:
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Why should you rotate food when thawing it
Answer: So it thaws more evenly, also to prevent bacteria
Explanation:
Unilever has a subsidiary in Japan. The valuation of this MNC should
rise when an event causes the expected cash flows from Japan to ____
and when JPY is expected to ____.
Answer: increase; appreciate.
Explanation:
A multinational firm is regarded as a firm that's located in different countries. It should be noted that the valuation of this multinational company should
rise when there's an event that causes the expected cash flows from Japan to increase and also when the currency JPY is expected to appreciate. Appreciate her simply means when there's an increase in the value of JPY.
Merchant Company issued 10-year bonds on January 1. The 6% bonds have a face value of $727,000 and pay interest every January 1 and July 1. The bonds were sold for $604,217 based on the market interest rate of 7%. Merchant uses the effective interest rate method to amortize bond discounts and premiums. On July 1 of the first year, Merchant should record interest expense (rounded to the nearest dollar) of
Answer:
Merchant Company
On July 1 of the first year, Merchant should record interest expense (rounded to the nearest dollar) of:
= $22,472.
Explanation:
a) Data and Calculations:
Face value of bonds = $727,000
Price of bonds = 604,217
Discounts = $122,783
Period of bonds = 10 years
Coupon rate of interest = 6%
Market interest rate = 7%
Payment of interest = Semi-annually (Jan. 1 and July 1)
July 1:
Cash payment = $21,810 ($727,000 * 3%)
Interest based on market rate = 21,148 ($604,217 * 3.5%)
Discount amortization = $662
Interest expense = $22,472 ($21,810 + $662)
Group Viewer LLC, a software company, used to provide profit sharing plans for its employees. After organizational restructuring, the management decides to replace the profit sharing plans with commissions for each employee. Which of the following is true of Group Viewer LLC?
a. It provided individual incentives; now it provides group incentives
b. It provided group incentives; now it provides organizational incentives
c. It provided individual incentives; now it provides organizational incentives
d. It provided organizational incentives; now it provides individual incentives
Answer:
d. It provided organizational incentives; now it provides individual incentives
Explanation:
Group viewer have the profit-sharing plan that could be provided the incentive of an organziation to the employees. This plan should be applied sometimes. Now if the commission is changed for each and every employee so it should be an individual incentive
Also the profit-sharing plan should not be either an individual or group incentive but the same should be the part of the organization
Therefore the option d is correct
Malouka participates in a research project for a large consumer behavior research firm. Each time she purchases items in a grocery store, she scans the barcodes of her products into an app, which sends her purchase data to the firm for analysis. Malouka is working with an example of automation known as __________.
Malouka is working with an automation example that we called the importing/exporting data.
The following information should be considered for the given situation:
Since she scans the barcodes of that product she purchased even all products are associated with the barcodes via using the mobile app.Also, she offered the research firm having more information like time, location, quantity, gender,etc.Therefore we can conclude that Malouka is working with an automation example that we called the importing/exporting data.
Learn more about the automation here: brainly.com/question/3147939
The total manufacturing cost variance is a.the difference between total actual costs and total standard costs for the units produced b.the difference between planned costs and standard costs for the units produced c.the flexible budget variance plus the time variance d.none of the above
Answer:
a.the difference between total actual costs and total standard costs for the units produced
Explanation:
The total manufacturing cost variance shows the difference between the total actual cost i.e. incurred and the standard cost incurred for the units that are produced or generated
In mathematically, it should be
Total manufacturing cost variance = standard cost - actual cost
hence, the first option is correct
A job was budgeted to require 5 hours of labor per unit at $12.00 per hour. The job consisted of 8,100 units and was completed in 37,500 hours at a total labor cost of $489,800. What is the direct labor rate variance
Answer:
3,800 unfavorable
Explanation:
A job was budgeted at 5 hours of labour unit at $12 for an hour
The job consists of 8,100 units
It was completed in 37,500 hours
The total labor cost is $489,800
The direct labor rate variance can be calculated as follows
= 5×12×8100
= 486,000
486,000-489,800
= -3,800(since It has a negative sign it is unfavorable)
= 3,800 unfavorable
The WRT Corporation makes collections on sales according to the following schedule:
25% in month of sale
65% in month following sale
5% in second month following sale
5% uncollectible
The following sales have been budgeted:
Sales
April $120,000
May $100,000
June $110,000
Budgeted cash collections in June would be:_____.
a. $27,500.
b. $98,500.
c. $71,000.
d. $115,500.
Answer:
Total cash collection June= $98,500
Explanation:
Giving the following information:
25% in month of sale
65% in month following sale
5% in second month following sale
5% uncollectible
The following sales have been budgeted:
Sales
April $120,000
May $100,000
June $110,000
Cash collection June:
Cash collection from June= 110,000*0.25= 27,500
Cash collection from May= 100,000*0.65= 65,000
Cash collection from April= 120,000*0.05= 6,000
Total cash collection June= $98,500
Bramble Corp. has a weighted-average unit contribution margin of $30 for its two products, Standard and Supreme. Expected sales for Bramble are 60000 Standard and 40000 Supreme. Fixed expenses are $2400000. How many Standards would Bramble sell at the break-even point
Answer:
160,000 units
Explanation:
Step 1 : Determine the Sales Mix
Bramble : Standard
60000 : 40000
3 : 2
Step 2 : Determine the Overall Break even Point
Break even Point = Fixed Cost ÷ Contribution per unit
= $2400000 ÷ $30
= 80,000
Step 3 : Determine break-even point for Standards
Standards Break even point = 80,000 x 2
= 160,000 units
Thus,
Bramble Corp would sell 160,000 units of Standards at the break-even point
There is no relationship between the level of education received and lifetime earnings.
Answer: False
Explanation:
There is a relationship between the level of education that a person receives and the lifetime earnings. It should be noted that the more education that a person receives, the higher the lifetime earnings of such person will be.
For example, someone who has a doctorate degree is expected to have a higher lifetime earnings than someone who has a high school degree.
Therefore, based on the explanation given, the statement is false.
Listed below in alphabetical order are the balance sheet items of Nolan Company at December 31, 2022
Accounts payable Accounts receivable Buildings Cash Common stock Equipment Land Retained earnings $11,000 15.000 65,000 11.000 80.000 10,000 31.000 41.000
Prepare a balance sheet and include a complete heading.
Answer and Explanation:
The preparation of the balance sheet is presented below:
Assets
cash $11,000
account receivable $15,000
equipment $10,000
buidlings $65,000
land $31,000
Total assets $132,000
Liabilities and stockholder equity
Account payable $11000
common stock $80,000
retained earnings $41,000
Total Liabilities and stockholder equity $132,000
Hernandez Company had the following transactions during 2020, its first year in business:
January 2 Issued 42,000 shares of $15 par common stock for $36 per share.
April 3 Issued 8,000 shares of $70 par preferred stock for $97 per share.
October 6 Purchased 2,000 shares of treasury stock for $29 per share.
December 9 Reissued 110 shares of treasury stock for $35 per share.
Question Completion:
Prepare Journal Entries.
Answer:
Hernandez Company
Journal Entries:
January 2 Debit Cash $1,512,000
Credit Common stock $630,000
Credit Additional Paid-in Capital-Common stock $882,000
To record the issuance of 42,000 shares of $15 par common stock for $36 per share.
April 3 Debit Cash $ 776,000
Credit Preferred stock $560,000
Credit Additional Paid-in Capital-Preferred stock $216,000
To record the issuance of 8,000 shares of $70 par preferred stock for $97 per share.
October 6 Debit Treasury Stock $30,000
Debit Additional Paid-in Capital-Common stock $28,000
Credit Cash $58,000
To record the repurchase of 2,000 shares of treasury stock for $29 per share.
December 9 Debit Cash $3,850
Credit Treasury stock $1,650
Credit Additional Paid-in Capital-Common stock $2,200
To record the reissuance of 110 shares of treasury stock for $35 per share.
Explanation:
a) Data and Analysis:
January 2 Cash $1,512,000 Common stock $630,000 Additional Paid-in Capital-Common stock $882,000
issuance of 42,000 shares of $15 par common stock for $36 per share.
April 3 Cash $ 776,000 Preferred stock $560,000 Additional Paid-in Capital-Preferred stock $216,000
issuance of 8,000 shares of $70 par preferred stock for $97 per share.
October 6 Treasury Stock $30,000 Additional Paid-in Capital-Common stock $28,000 Cash $58,000
repurchase of 2,000 shares of treasury stock for $29 per share.
December 9 Cash $3,850 Treasury stock $1,650 Additional Paid-in Capital-Common stock $2,200
re-issue of 110 shares of treasury stock for $35 per share.
A price-cutting tactic may backfire if
Philadelphia Company has the following information for March: Sales $450,000 Variable cost of goods sold 240,000 Fixed manufacturing costs 70,000 Variable selling and administrative expenses 52,000 Fixed selling and administrating expenses 35,000 Determine the March: a. Manufacturing margin $fill in the blank 1 b. Contribution margin $fill in the blank 2 c. Operating income for Philadelphia Company $fill in the blank 3
Answer:
a.$210,000
b. $158,000
c. $53,000
Explanation:
Calculation to determine the March (a) manufacturing margin, (b) contribution margin, and (c) income from operations for Philadelphia Company.
A)Calculation to determine the March manufacturing margin
Using this formula
Manufacturing Margin =(Sales – Cost of Goods Sold)
Let plug in the formula
Manufacturing Margin=450,000 – 240,000
Manufacturing Margin= $210,000
(B)Calculation to determine contribution margin,
Using this formula
Contribution Margin =(Gross Manufacturing Margin – Variable Expenses)
Let plug in the formula
Contribution Margin=210,000 – 52,000
Contribution Margin= 158,000
(C)Calculation to determine the March income from operations for Philadelphia Company
Using this formula
Income from Operations= (Sales – All expenses)
Let plug in the formula
Income from Operations= 450,000 – 397,000
Income from Operations = 53,000
Therefore the March (a) manufacturing margin, (b) contribution margin, and (c) income from operations for Philadelphia Company are:
a.$210,000
b. $158,000
c. $53,000
Beck Inc. and Bryant Inc. have the following operating data: Beck Inc. Bryant Inc. Sales $336,700 $1,092,000 Variable costs 135,100 655,200 Contribution margin $201,600 $436,800 Fixed costs 138,600 268,800 Income from operations $63,000 $168,000 a. Compute the operating leverage for Beck Inc. and Bryant Inc. If required, round to one decimal place.
Answer:
Beck Inc Operating leverage 3.2
Bryant Inc Operating leverage 2.6
Explanation:
Computation for the operating leverage for Beck Inc. and Bryant Inc
Using this formula
Operating leverage = Contribution margin/Income from operation
Let plug in the formula
Beck Inc Operating leverage = $201,600/ $63,000
Beck Inc Operating leverage= 3.2
Bryant Inc Operating leverage= $436,800/$168,000
Bryant Inc Operating leverage= 2.6
Therefore the operating leverage for Beck Inc. and Bryant Inc are:
Beck Inc Operating leverage 3.2
Bryant Inc Operating leverage 2.6
The University of Central Florida has a typical College of Business which houses several specific mini-departments such as management, marketing, finance, accounting, economics, and real estate. This College of Business best resembles a(n) ________ structure.
Answer:
functional
Explanation:
It is correct to say that the College of Business is better similar to a functional structure, which is a type of organizational structure where there is an organization of resources by departments, where there are employees with similar knowledge and specializations, the division of work occurs by function.
In this type of structure, there is the possibility of work specialization, where there is an appreciation of the exchange of knowledge and experiences of the work function, greater development of managers, greater standardization of work and processes.
Kluber, Inc. had net income of $911,000 based on variable costing. Beginning and ending inventories were 56,100 units and 54,200 units, respectively. Assume the fixed overhead per unit was $1.80 for both the beginning and ending inventory. What is net income under absorption costing?
a. $811,730
b. $904,160
c. $1,010,270
d. $907,580
e. $911,000
Answer:
Net operating income (absorption)= $907,580
Explanation:
Giving the following information:
Fixed overhead per unit= $1.80
Net income= $911,000 (variable costing)
Beginning inventory= 56,100 units
Ending inventory= 54,200 units
Under absorption costing, fixed manufacturing overhead is a product cost. We need to incorporate into the cost of goods sold the fixed overhead from beginning inventory and deduct the fixed overhead allocated into ending inventory.
Net operating income= 911,000
Less:
Fixed overhead beginning inventory= (1.8*56,100)
Add:
Fixed overhead ending inventory= (1.8*54,200)
Net operating income (absorption)= $907,580
An advance payment of $1,000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate the December 31 adjusting entry by choosing the correct statement below.
a. Debit Service revenue for $400.
b. Debit Unearned revenues for $400.
c. Debit Unearned revenues for $600.
d. Credit Unearned revenues for $400.
Answer:
b. Debit Unearned revenues for $400.
Explanation:
When money is received in advance for a service that is yet to be rendered, the money is accounted for as a liability called deferred or unearned income.
The entries are
Dr Cash
Cr Deferred revenue
when the service is rendered, revenue is said to be earned with the following entries passed
Dr Deferred revenue
Cr Revenue
Hence when $1,000 for services was received on December 1 and was recorded as a liability
Dr Cash $1,000
Cr Deferred revenue $1,000
when $400 had been earned
Dr Deferred revenue $400
Cr Revenue $400
Option b is right
b. Debit Unearned revenues for $400.
