On December 1, Year 1, Jack's Snow Removal Company received $6,000 of cash in advance from a customer and promised to provide services for that customer during the months of December, January, and February. How will the Year 1 year-end adjustment to recognize the partial expiration of the contract impact the financial statements?
A)Total assets will increase by $2,000.
B)Stockholders' Equity will increase by $2,000.
C)Total liabilities will increase by $2,000.
D)Total assets will increase by $2,000 and stockholders' equity will increase by $2,000.

Question

Quizplus · Accepted Answer

The company will recognize $2,000 as revenue for December, which increases stockholders' equity through retained earnings. The liability (unearned revenue) decreases by $2,000, but total assets remain unchanged.

On December 1, Year 1, Jack's Snow Removal Company Received