At the beginning of the year, a business had a liability to customers of $7,500 for unearned service revenue collected in advance. On May 31, the business received advance cash receipts of $20,000. At year end, December 31, the company's liability to customers was $3,500 for unearned service revenue collected in advance.

Required

1. Assume that the company records unearned revenues by initially crediting a liability account. Open T-accounts for Unearned Service Revenue and Service Revenue, and place the beginning balance in Unearned Service Revenue. Journalize the cash collection and adjusting entries and post their dollar amounts. As references in the T-accounts, label the balance, the cash receipt, and the adjustment.

2. Assume that the company records unearned revenues by initially crediting a revenue account. Open T-accounts for Unearned Service Revenue and Service Revenue, and place the beginning balances in Service Revenue and Unearned Service Revenue. Journalize the cash collection and adjusting entries and post their dollar amounts. As references in the T-accounts, label the balance, the cash receipt, and the adjustment.

3. Compare the ending balances in the two accounts. Explain why they are the same or different.