Sparten, Inc. Plumbing Contractor Adjusting Entry for Uncompleted Job | CFA Level 1 Exam

Adjusting Entry for Uncompleted Job

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Question

Sparten, Inc., a plumbing contractor, received a check for $3,000 on June 30 for services to be performed in the following fiscal month. During the July accounting period, Sparten completed all but $500 of the job. What adjusting entry needs to be made at the end of July?

Answers

A. increase Cash and Revenue for $3,000

B. decrease Accounts Receivable and increase Revenue for $2,500

C. increase Unearned Revenue and decrease Cash for $500

D. debit Unearned Revenue and credit Revenue for $2,500

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Explanations

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A. B. C. D.

When the check was received on June 30, a liability was established for $3,000 because revenue could not be recognized until it was earned. During July, $2,500 of revenue was earned and should be recognized, along with a reduction (debit) to the Unearned Revenue account.

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