December 5. Arnold Delivery received $2,000 from a customer in payment for futur

Question

December 5. Arnold Delivery received $2,000 from a customer in payment for future delivery services. The journal entry debited Cash. If one fourth of the $2,000 in the Unearned Delivery Fees account has been earned toy December 31, the adjusting entry on December 31 is: Debit Unearned Delivery Fees, Credit Delivery Service Revenue, $400 Debit Unearned Delivery Fees, Credit Delivery Service Revenue, $500 Debit Delivery Service Revenue, Credit Unearned delivery Fees, $500 Debit Delivery Service Revenue, Credit Unearned Delivery Fees, $400

Explanation / Answer

Answer:

B. Debit Unearned Delivery fees $500 ; Credit Delivery service revenue $500.

Calculation of amount :

One-fourth of Unearned Delivery fees = 2000 * 1/4 = $500

Reason: As the on the date of receiving payment for future delivery services. company must had prepared the following entry :

Cash Dr. 2,000

Unearned Delivery Fees Cr. 2,000

as the delivery services had not yet been provided on the date of receipt of payment, so service revenue account cannot be credited. Hence as 1/4th of the services have been provided, therefore on 31st December company prepares the follwing entry:

Unearned Delivery Fees Dr. 500

Delivery services revenue Cr. 500

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