Question

SERVICE REVENUE CONTRACT - 22 POINTS On April 1, 2020 Top Notch Service, Inc enters into a 2 year contract with Demanding Customer, Inc whereby Top Notch will provide services to Demanding Customer at a rate of $20,000 per month. The contract term is from April 1, 2020 through March 31, 2022. On April 1, 2020 Demanding Customer gives Top Notch $140,000 towards the contract. Assume no other payments are made and the monthly services are being performed as agreed upon. Using the T-accounts below, determine the amounts of Top Notch for: Total Revenue over the 2 year contract Revenue for the year ended 12/31/20 Accounts receivable as of 12/31/20 Unearned Revenue as of 12/31/20 CASH UNEARNED REVENUE REVENUE ACCOUNTS RECEIVABLE

Answer 1

Monthly service revenue = $20,000

On April 1, 2020, revenue of $140,000 was received in cash for 7 months (20,000 x 7 = $140,000) i.e from April to October.

Hence, on December 31, 2020, two months revenue was accrued.

Total revenue over the 2 year contract = Monthly service revenue x 24

= 20,000 x 24

= $480,000

Revenue for the year ended 12/31/20 (for 9 months i.e. from April 1 o December 31) = Monthly service revenue x 9

= 20,000 x 9

= $180,000

Accounts receivable as of 31/12/20 = service revenue for 2 months

= 20,000 x 2

= $40,000

Unearned revenue as of 31/12/20 = $0

Cash

service revenue	140,000
Ending balance	140,000

Revenue

		Cash	140,000
		Accounts receivable	40,000
		Ending balance	180,000

Unearned revenue

Ending balance

0

Accounts receivable

Service REVENUE	40,000
Ending balance	40,000

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