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

Question

Yurman Co. sells major household appliance service contracts for cash. The service contracts are for one-year, two-year, or three-year periods. Cash receipts from contracts are credited to unearned service contract revenues. This account had a balance of $720,000 at December 31, 2013 before year-end adjustment. Service contract costs are charged as incurred to the service contract expense account, which had a balance of $180,000 at December 31, 2013. Outstanding service contracts at December 31, 2013 expire as follows: During 2014- $150,000, During 2015- $240,000, During 2016-$105,000. What amount should be reported as unearned service contract revenues in Yurman's December 31, 2013 balance sheet?

Explanation / Answer

Balance in unearned service should be total of outstanding service contracts as on 31st Dec 2013 as $495000.

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