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 elements of the financial statements model?
A)Total assets will increase by $2,000.
B)Equity will increase by $2,000.
C)Total liabilities will increase by $2,000.
D)Total assets will increase by $2,000 and equity will increase by $2,000.

Question

Quizplus · Accepted Answer

The year-end adjustment to recognize one month's work on the three-month contract results in a $2,000 decrease in liabilities (unearned revenue)and a $2,000 increase in equity (retained earnings due to recognizing revenue).

On December 1,Year 1,Jack's Snow Removal Company Received $6,000 of Cash