On September 1, Best Company began a contract to provide services to Dildwood Company for six months, with the total $10,800 payment to be made at the end of the six-month period. Equal services are provided each month. The firm uses the account Fees Receivable to reflect amounts due but not yet billed.
What proper adjusting entry would Best Company make on December 31, the end of the accounting period (no previous adjustment has been made)?
A) Cash 7,200
Service Fees Earned 7,200
B) Fees Receivable 10,800
Service Fees Earned 7,200
Unearned Service Fees 3,600
C) Fees Receivable 7,200
Service Fees Earned 7,200
D) Unearned Service Fees 7,200
Service Fees Earned 7,200
E) None of the above

Question

Quizplus · Accepted Answer

By December 31, four months of the service have been provided (September, October, November, December), so 4/6 of the total payment is earned, which is $10,800 * (4/6) = $7,200. The correct adjusting entry increases Fees Receivable for the amount earned but not yet billed and recognizes the revenue by increasing Service Fees Earned.

On September 1, Best Company Began a Contract to Provide