E3-40B. (Learning Objectives 1, 3: Linking deferrals and cash flows) GTel, the British wireless phone service provider, collects cash in advance from customers. All amounts are in millions of pounds sterling (£). Assume GTel collected £500 in advance during 20X7 and at year-end still owed customers phone service worth £125.

Requirements 1. Show what GTel will report for 20X7 on its Income Statement Balance Sheet.

2. Use the same facts for GTel as in Requirement 1. Further, assume GTel reported unearned service revenue of £85 back at the end of 20X6. Show what GTel will report for 20X7 on the same financial statements. Explain why your answer here differs from your answer to Requirement 1.