Allen Company is hired on December 15, 2016 to perform services, beginning on December 16, 2016. Under this agreement, Allen will earn $4500 monthly and receive payment on January 15, 2017. What amount of service revenue should be recorded for the year ending December 31, 2016?

Revenue of $2,250 should be be recognized for the year ended December 31, 2016.

Explanation:

On December 31, 15 days for the month is passed and services have been provided to the customer. The revenue only for these days should be recorded according to the matching and accrual accounting concepts. As the payment will be made on January 15, so a receivable will also be recorded with the same value of revenue

Total Monthly revenue = $4,500

Service revenue recognition on December 31, 2016 = $4,500 x 0.5 = $2,250