Question

# 30. On May 1, 2019, Luke paid LinkedIn \$1,200 for his 2-year subscription for online professional...

30. On May 1, 2019, Luke paid LinkedIn \$1,200 for his 2-year subscription for online professional networking.   The subscription starts immediately.   What amount of revenue should LinkedIn record for the years of 2019 and 2020?

A. Year 2019 = \$1,200; Year 2020 = \$0

B. Year 2019 = \$600, Year 2020 = \$600

C. Year 2019 = \$400; Year 2020 = \$600

D. The answer cannot be determined based on the information given

C) Year 2019= \$ 400 , year 2020 = \$ 600 is correct alternative

Explanation :

As per accrual basis of accounting, revenues can be recorded only when service has been rendered . Cash received or not it is totally immaterial to record revenue.

Journal entry for 2019

 Date Account titles Debit Credit May 1,2019 Cash \$ 1,200 Unearned revenue \$ 1,200 December 31, 2019 Unearned revenue \$ 400 Service revenue [ \$ 1,200/ 24] X 8 \$ 400 ( Service revenue recorded for 8 months of service rendering from may 19 to December 19)

Journal entry for 2020

 Date Account titles Debit Credit December 31,2020 Unearned revenue \$ 600 Service revenue ( \$ 1,200/ 24) X 12 \$ 600 ( Service revenue recorded for the period of 12 months ( 1/1/20 to 31/12/20)

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