Wave Inn is a resort located in Canada. Wave Inn collects cash when guests make a reservation. During December 2013, Wave Inn collected $75,000 of cash and recorded the receipt by recognizing revenue. By the end of the month Wave Inn had earned one third of this amount, the other two thirds will be earned during January 2014. The adjusting entry required at December 31, 2013 would impact the statement of financial position by
A) Decreased Equity $50,000.
B) Decreased Liabilities $50,000.
C) Increased Assets $75,000.
D) Increased Equity $25,000.

Question

Quizplus · Accepted Answer

Wave Inn initially recognized the entire $75,000 as revenue, but by the end of December, only one third ($25,000) was earned. The remaining $50,000 should be recorded as unearned revenue (a liability), decreasing equity by $50,000.

Wave Inn Is a Resort Located in Canada