On May 1, 2020. Bee Advertising Company received $2,500 from Julie Cee for advertising services to be completed by April 30, 2021. Assume the receipt was recorded as unearned revenue and that at December 31, 2020, $1,000 of the fees had been earned. The adjusting entry prepared by Bee on December 31, 2020, should include
A) A debit to Unearned Revenue for $500
B) A credit to Unearned Revenue for $500
C) A credit to Revenue for $1,000
D) A debit to Revenue for $1,000
E) A debit to Revenue for $500

Question

Quizplus · Accepted Answer

The adjusting entry should recognize the portion of the revenue that has been earned as of December 31, 2020. Since $1,000 of the $2,500 fee has been earned, the entry should credit Revenue for $1,000. The unearned portion of the fee as of December 31, 2020 is $1,500 ($2,500 - $1,000 earned) so there is no need for a debit or credit to Unearned Revenue. Therefore, option C is the correct answer.