14 of 15 On May 1 Orange Company received an advance payment of $50,000 from the

Question

14 of 15 On May 1 Orange Company received an advance payment of $50,000 from their customer. The payment was for five months of services that Orange will perform for the customer at the rate of $10,000 per month. Orange started providing the service on May 1. On May 1 Orange made an entry in its accounting systerm for S50,000. This is the only entry that has been made related to this transaction. Select the adjusting entry Orange should make prior to preparing financial statements on May 31 and crediting Unearned Service Revenue Account Name Debit Credit Unearned Service Revenue 40,000 Service Revenue 40,000 Account Name Debit Credit Service Revenue 40,000 Unearned Service Revenue 40,000 Account Name Debit Credit Service Revenue 10,000 Unearned Service Revenue 10,000 Account Name Debit Credit Unearned Service Revenue 10,000 Service Revenue 10,000 None of the above

Explanation / Answer

THE ANSWER IS THE LAST JOURNAL:

DEBIT: UNEARNED REVENUE $10,000

CREDIT: SERVICE REVENUE $10,000

This is because $50,000/5 months = $10,000 per month

Thus we are only showing May accounts

We must transfer the month's revenue to Income Statement

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