On May 1, Carter Advertising Company received $3,600 from Kaitlyn Breanna for advertising services to be completed April 30 of the following year. The Cash receipt was recorded as unearned fees. The adjusting entry for the year ended December 31, Year 2 would include:
A) a debit to Earned Fees for $3,600.
B) a debit to Unearned Fees for $1,200.
C) a credit to Unearned Fees for $1,200.
D) a debit to Earned Fees for $2,400.
E) a credit Earned Fees for $2,400.

Question

Quizplus · Accepted Answer

The adjusting entry would include a debit to Unearned Fees for $1,200 because by December 31, Year 2, 8 months of the service period (May 1 to December 31) have passed, which is 8/12 of the total service period. Therefore, $1,200 of the $3,600 has been earned (8/12 * $3,600).

On May 1, Carter Advertising Company Received $3,600 from Kaitlyn