Question

In 2018, Fox. Co. performs 7,000 service hours on a $100,000 contract for which they received...

In 2018, Fox. Co. performs 7,000 service hours on a $100,000 contract for which they received $20,000 cash in advance in the previous year, 2017. Fox estimates that it will perform 3,000 additional hours of service to complete the contract next year in 2019. Which of the following represents how Fox's financial statements will change based on Fox's entry for 2018 regarding this contract?
Assets: Increase Liabilities: Increase    SE: Increase    NI: Increase
Assets: Increase   Liabilities: Decrease    SE: Increase    NI: Increase
Assets: Increase    Liabilities: Decrease    SE: No Effect    NI: Increase
Assets: Decrease    Liabilities: Decrease    SE: Increase    NI: Increase

Homework Answers

Answer #1

Total service hours : 7000+3000 =10000

Of the service hours 7000/10000 = 70 % of contract is completed by 2018

Total revenue to be recognised in 2018 : 100000*70% = 70000

entry:

Account Debit credit
Accounts receivable [asset increase ] 50000
Unearned service revenue [liability decrease] 20000
Service revenue   [stockholders equity increase ] 70000

correct option is B"- Assets: Increase   Liabilities: Decrease    SE: Increase    NI: Increase

**service revenue will increase net income which is a part of stockholders equity.

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