Felton Co. sells major household appliance service contracts for cash. The servi

Question

Felton Co. sells major household appliance service contracts for cash. The service contracts are for a 1-year, 2-year, or 3-year period. Cash receipts from contracts are credited to unearned service contract revenues. This account had a balance of $480,000 at December 31, 2009 before year-end adjustment. Service contract costs are charged as incurred to the service contract expense account, which had a balance of $120,000 at December 31, 2009. Outstanding service contracts at December 31, 2009 expire as follows:

During 2010 During 2011 During 2012
$100,000 $160,000 $70,000
What amount should be reported as unearned service contract revenues in Felton's December 31, 2009 balance sheet?

Explanation / Answer

Felton Co. sells major household appliance service contracts for cash. The service contracts are for a 1-year, 2-year, or 3-year period. Cash receipts from contracts are credited to unearned service contract revenues. This account had a balance of $480,000 at December 31, 2009 before year-end adjustment. Service contract costs are charged as incurred to the service contract expense account, which had a balance of $120,000 at December 31, 2009. Outstanding service contracts at December 31, 2009 expire as follows:

During 2010 During 2011 During 2012
$100,000 $160,000 $70,000

What amount should be reported as unearned service contract revenues in Felton's December 31, 2009 balance sheet?
a. $360,000.
b. $330,000.
c. $240,000.
d. $220,000.

. $650,000 + $65,000 $625,000 = $90,000.

($94,000 x .07) + ($24,000 x .03) = $7,300.

$100,000 + $160,000 + $70,000 = $330,000.

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