Question
Eaton Co. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts
Eaton Co. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to Unearned Service Revenue. This account had a balance of 2,700,000 at December 31, 2019 before year-end adjustment. Service contract costs are charged as incurred to the Service Contract Expense account, which had a balance of 675,000 at December 31, 2019. Service contracts still outstanding at December 31, 2019 expire as follows: During 2019 570,000; During 2020 855,000; During 2021 525,000. What amount should be reported as Unearned Service Revenue in Eaton's December 31, 2019 statement of financial position? a. 750,000. b. 1,950,000. c. 2,025,000. d. 1,275,000.
Can somebody please provide a detailed answer as my professors solution says that b. is correct, yet i cant see how thats the case as i thought to deduct the amounts of during 2020 and 2021 from the balance of 2,700,000
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