Question

On September 1, Consulting Company began a contract to provide services to Willowwood Company for six months, with the total $21,600 payment to be made at the end of the six-month period. Equal services are provided each month. The firm uses the account Fees Receivable to reflect amounts due but not yet billed. What proper adjusting entry would Consulting Company make on December 31, the end of the accounting period (no previous adjustment has been made)?

Answer 1

Answer:

B.

Fees Receivable              14,400

Service Fees Earned                      14,400

Explanation:

First, the multiple choices to the question are as follows

A.

Unearned Service Fees   14,400

Service Fees Earned                        14,400

B.

Fees Receivable              14,400

Service Fees Earned                      14,400

C.

Fees Receivable              21,600

Service Fees Earned                      14,400

Unearned Service Fees                  7,200

D.

Cash                            14,400

Service Fees Earned                    14,400

Solution:

First, We calculate that September 1st to December 31st is a total of 4 months

Secondly, We calculate the monthly fees to be paid as follows

$21,600 is payable at the end of 6 months

Monthly payment = $21,600/6 = $3,600 perm month

Thirdly, we determine the payment for 4 months (September to December)

= $3,600 x 4 = $14,400.

Therefore, since the amount is yet be billed, we debit it to fee receivable account and credit it to service fee earned account

Particulars                                Debit                       Credit

Fee Receivable                     $14,400

Service Fee earned                                             $14,400