Question

On December 1, Simpson Marketing Company received $8,400 from a customer for a 2-month marketing plan...

On December 1, Simpson Marketing Company received $8,400 from a customer for a 2-month marketing plan to be completed January 31 of the following year. The cash receipt was recorded as unearned fees. The adjusting entry for the year ended December 31 would include:

Multiple Choice

a debit to Earned Fees for $8,400.

a debit to Unearned Fees for $4,200.

a credit to Unearned Fees for $2,800.

a debit to Earned Fees for $5,600.

a credit to Earned Fees for $5,600.

Business   Accounting   
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Answer #1

On Dec 1 when 8400 was received the accounting was done by "Crediting" Unearned Fees, reason being this is money received in Advance for which services performance is yet to be done, so as to say that this money is not yet "Earned".

On Dec 31 1 month has lapsed hence 8400/2 = 4200 is earned since the performance/delivery of the contract is done for 1 month. Hence unearned should be reduced by 4200 which is done by "Debiting" the unearned account.

Hence " a debit to unearned fees for $4200" is correct option.

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