Rathbone Corp. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to Unearned Service Revenues. This account had a balance of $ 1,100,000 at December 31, 2020, before year-end adjustment. Service contract costs are charged as incurred to the Service Contract Expense account, which had a balance of $ 325,000 at December 31, 2020.
Service contracts still outstanding at December 31, 2020, expire as follows:
$\begin{array} { l r }
\text { During 2021 } & \$ 140,000 \
\text { During 2022 } & 210,000 \
\text { During 2023 } & 99,000
\end{array}$
What amount should be reported as Unearned Service Revenues on Rathbone's December 31, 2020, statement of financial position?
A) $ 774,000
B) $ 325,000
C) $ 449,000
D) $ 124,000

Question

Rathbone Corp. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to Unearned Service Revenues. This account had a balance of $ 1,100,000 at December 31, 2020, before year-end adjustment. Service contract costs are charged as incurred to the Service Contract Expense account, which had a balance of $ 325,000 at December 31, 2020. 
Service contracts still outstanding at December 31, 2020, expire as follows:
$\begin{array} { l r } 
\text { During 2021 } & \$ 140,000 \
\text { During 2022 } & 210,000 \
\text { During 2023 } & 99,000
\end{array}$
What amount should be reported as Unearned Service Revenues on Rathbone's December 31, 2020, statement of financial position?
A) $ 774,000
B) $ 325,000
C) $ 449,000
D) $ 124,000

Quizplus · Accepted Answer

To calculate the amount of unearned service revenue at December 31, 2020, we need to subtract the portion of service contracts still outstanding at that date from the balance in the Unearned Service Revenues account before adjustment.

Balance in Unearned Service Revenues before adjustment = $1,100,000

Portion of service contracts still outstanding at December 31, 2020 = $140,000 + $210,000 + $99,000 = $449,000

Unearned Service Revenues at December 31, 2020 = $1,100,000 - $449,000 = $651,000

Therefore, the correct answer is C, $449,000.

Rathbone Corp During 2021 $140,000 During 2022 210,000 During 2023 99,000\begin{array} { l r } \text { During 2021 } & \$ 140,000 \\\text { During 2022 } & 210,000 \\\text { During 2023 } & 99,000\end{array} During 2021 During 2022 During 2023 ​$140,000210,00099,000​

Rathbone Corp $\begin{array} { l r } \text { During 2021 } & \$ 140,000 \\\text { During 2022 } & 210,000 \\\text { During 2023 } & 99,000\end{array}$