Chapter 8 - Adjusting Entries Continued 98 SOLID FOOTING APRIL'S UNEARNED REVENUE ADJUSTING ENTRY On April 1, when Lenny's signed the contract with the university. Lenny's was paid $32,000 in advance for the first four months of services. During the month of April, Lenny's performed the lawn services for the university. The timeline below shows the period of service covered by the $32.000 Lenny's received on April 1. You can see from the timeline that on April 1. Lenny's owed the university $32,000 of services. The original $32,000 entry into the Unearned Liability account reflected Lenny's $32,000 liability for future services to the university. The timeline also shows the period of time and the dollar amount of services the university is still due as of the end of April. As of April 30, Lenny's owes the university three months of service. Each month of service has a value of $8,000; thus Lenny's owes the university $24,000 of future services as of April 30. Because the balance in the Unearned Revenue account tracks Lenny's liability for future services to the university, the April 30 balance in the Unearned Revenue account should be $24,000. Unearned Revenue Timeline -----$32,000 ----- May 31 April 1 April 30 June 30 July 31 $24,000 | "T" Account Analysis for Asset and Liability Accounts Account Name Unearned Revenue Debit Credit (1) What is the current balance? 32,000 (3) What adjustment is required to adjust from the current balance 8,000 to the should be balance? (2) What should be the balance? 24,000 Chapter 8 - Adjusting Entries Continued 98 SOLID FOOTING APRIL'S UNEARNED REVENUE ADJUSTING ENTRY On April 1, when Lenny's signed the contract with the university. Lenny's was paid $32,000 in advance for the first four months of services. During the month of April, Lenny's performed the lawn services for the university. The timeline below shows the period of service covered by the $32.000 Lenny's received on April 1. You can see from the timeline that on April 1. Lenny's owed the university $32,000 of services. The original $32,000 entry into the Unearned Liability account reflected Lenny's $32,000 liability for future services to the university. The timeline also shows the period of time and the dollar amount of services the university is still due as of the end of April. As of April 30, Lenny's owes the university three months of service. Each month of service has a value of $8,000; thus Lenny's owes the university $24,000 of future services as of April 30. Because the balance in the Unearned Revenue account tracks Lenny's liability for future services to the university, the April 30 balance in the Unearned Revenue account should be $24,000. Unearned Revenue Timeline -----$32,000 ----- May 31 April 1 April 30 June 30 July 31 $24,000 | "T" Account Analysis for Asset and Liability Accounts Account Name Unearned Revenue Debit Credit (1) What is the current balance? 32,000 (3) What adjustment is required to adjust from the current balance 8,000 to the should be balance? (2) What should be the balance? 24,000
