Question

On July 1, 2017, Ling Co. pays $15,360 to Sunland Company for a 2-year insurance contract. Both companies have fiscal years ending December 31. For Sunland Company, enter the July 1 transaction and the December 31 adjustment in the tabular summary that follows. (If a transaction results in a decrease in Assets, Liabilities or Stockholders' Equity, place a negative sign (or parentheses) in front of the amount entered for the particular Asset, Liability or Equity item that was reduced.)

Answer 1

Answer:

The payment to Sunland will increase the cash account of Sunland by $15,360.

It will also increase the liability account of Unearned Service revenue because Sunland has been paid for a service hat they have not rendered yet.

In December, they would have earned part of that money as 6 months would have elapsed.

Assuming the insurance is per month, for 2017, the revenue earned would be;

= 15,360 * 6/24 months

= $3,840

This amount will be sent to revenue on Dec. 31 and debited from the Unearned service revenue account to reduce that liability.