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4 September, 11:27

Allen Company is hired on June 30, 2016 to perform services, beginning on July 1, 2016. Under this agreement, Allen will earn $4,500 annually and receive payment on June 30, 2017. What amount of service revenue should be recorded for the year ending December 31, 2016

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  1. 4 September, 11:43
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    The amount of service revenue should be recorded for the year ending December 31, 2016: $2,250

    Explanation:

    Allen Company performs services from beginning on July 1, 2016.

    Following the Accrual accounting - an accounting method that revenue or expenses are recorded when a transaction occurs rather than when payment is received or made.

    Allen will earn $4,500 annually and receive payment on June 30, 2017. For the year ending December 31, 2016, Allen Company has performed services for 6 months.

    The amount of service revenue = ($4,500/12) x6 = $2,250

    The entry will be:

    Debit Accounts Receivable $2,250

    Credit Service revenue $2,250
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