Question

Sweet Air Flow sells prepaid HVAC contracts. When a contract is sold, cash is debited and...

  1. Sweet Air Flow sells prepaid HVAC contracts. When a contract is sold, cash is debited and contract revenue is credited. As of December 31, 2020, the year end, the following information was available regarding contract sales:

Date Sold      Amount          Contract Term

August 1        $72,000          1 year

October 1      $69,600          6 months

November 1 $42,000          3 months

The unadjusted balance of unearned contract revenue has a credit balance of $10,000. This represents contracts that expired during 2020. Give the adjusting entry needed for contract revenue.

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Answer #1
Revenue to be recognized:
Beginning balance of Unearned contract revenue to be recognized 10000
Current contract
Aug to be recognized for 5 months (72000*5/12) 30000
Oct to be recognized for 3 months (69600*3/12) 17400
Nov to be recognized for 2 months (42000*2/12) 7000
Total Unearned contract revenue to be recognized 64400
Adjusting entry
S.no. Accounts title and explanations Debit $ Credit $
a. Unearned Contract revenue 64400
       Contract revenue 64400
(for revenue earned)
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