Account for unearned revenue. (LO 1, 3)

On January 1, 2006, the law firm of Munns and Munns was formed. On February 1, 2006, the company received \(\$ 18,000\) from clients in advance for services to be performed monthly during the next 18 months. During the year, the firm incurred and paid expenses of \(\$ 5,000\). Is the adjustment for the service revenue an accrual or deferral? Assuming that these were the only transactions completed in 2006 , prepare the firm's income statement, statement of cash flows, statement of retained earnings for the year ended December 31, 2006, and balance sheet at December 31, 2006.