Question

Capstone Lawnmowers operates in the beautiful pacific northwest. One of the services it offers its residential...

Capstone Lawnmowers operates in the beautiful pacific northwest. One of the services it offers its residential customers is an annual subscription service whose fee is paid annually in advance. The service is based on the size of the yard to be serviced. One customer, Lerriuqs Tunaepeht, paid $6,000 on June 1, 2016, for one year service beginning on that date. The services are provided evenly every month. Capstone’s fiscal year ends on December 31.

  1. What journal entry should be made on June 1, 2016?
  2. How much revenue will the company have earned by Dec 31, 2016?
  3. What adjusting entry should be made on December 31, 2016
    PLEASE BE SPECIFIC WHY YOU COME UP WITH THOSE ANSWERS / NUMBERS, thank you !
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Homework Answers

Answer #1

1.Journal Entry on 01 June & 31 Dec, 2016

Journal of Capstone Lawnmowers

Date Particulars Debit Credit

1 June Cash     $6000

To Unearned Subscription $6000

(being cash received for 1 year subscription)

31 Dec Unearned Subscription $3500

To Subscription Revenue $3500

(being revenue for the year recognized)

2.Revenue earned by the company till 31 Dec, 2016

   = Total Revenue Received * Months of service provided during the year/ 12 months

= $6000 * 7 months/12 months = $3,500

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