Question

For a recent year, Microsoft Corporation (MSFT) reported short-term unearned revenue of $23,223 million. For the same year, Microsoft also reported total revenues of $93,580 million.

a. Assume that Microsoft recognized $2,000 million of unearned revenue as revenue during the year, what entry for unearned revenue did Microsoft make during the year? Indicate each account affected, whether the account is increased or decreased, and the amount of the increase or decrease.

Unearned revenue		$ million
Revenue		$ million

b. What percentage of total revenues is the short-term unearned revenue? Round your percentage answer to one decimal place.
%

Answer 1

a)

Unearned fees is the amount of fees received in advance towards services which are yet to be provided. Unearned fees is a current liability

An amount equal to fees earned during the period for services provided is transferred from unearned fees account to Fees earned account (Income) at the end of the year

Amount to be transferred

= $2,000 million

Journal entry

Unearned fees    $2,000 million

    Fees earned          $2,000 million

(Being fees earned towards services provided transferred from unearned fees to fees earned)

Unearned fees – Will decrease – By $2,000 million

Fees earned – Will increase – By $2,000 million

b)

Percentage of total revenue of unearned revenue

= Unearned revenue / Total revenue

= $23,223 million / $93,580 million

= 0.248 or 24.8%