O.K.C. Company collected $14,000 in September of 2013 for 4 months of service which would take place from October of 2013 through January of 2014. The revenue reported from this transaction during 2013 would be
A) 0.
B) $10,500.
C) $14,000.
D) $3,350.

Question

Quizplus · Accepted Answer

The revenue recognized during 2013 will only include the amount of service that was provided in 2013, which is one month (October). Therefore, the revenue recognized in 2013 will be 1/4 of the total amount collected, which is $14,000/4 = $3,500. However, since the revenue was collected in advance, it will be recorded as unearned revenue initially. As each month's service is provided, $3,500/4 = $875 will be recognized as revenue and $875 will be subtracted from unearned revenue. Therefore, the revenue reported during 2013 will be $875 x 3 = $2,625. However, since the question asks for the revenue "reported" (not recognized) during 2013, the answer will be $875 x 3 = $2,625.

OKC Company Collected $14,000 in September of 2013 for 4