MULTIPLE CHOICE On January 1 a customer paid X Company 21600

MULTIPLE CHOICE:

On January 1, a customer paid X Company $21,600 in advance for cleaning services. The cleaning was going to be done once in January, once in February, and once in March, so the payment was recorded as Deferred Revenue. What will be the result of the adjusting entry on January 31?

A: a balance of $7,200 in the Deferred Revenue account on the Balance Sheet
B: a $7,200 increase in the Cash account on the Balance Sheet
C: revenue of $7,200 reported on the Income Statement
D: a $7,200 increase in the Deferred Revenue account on the Balance Sheet

Solution

Income to be recorded for the month of January = $21,600 / 3 months = $7,200

Hence, $7,200 shall be recognised as income for the month of January by transferring from deferred revenue

The adjusting entry shall be

C: revenue of $7,200 reported on the Income Statement