Proctor Ltd. sells major household appliance service contracts for cash. The service contracts are for a 1-year, 2-year, or 3-year period. Cash receipts from contracts are recorded as unearned contract revenues. This account had a balance of $720,000 at December 31, 1996. Service contract costs are charged as incurred to the service contract expense account, which had a balance of $180,000 at December 31, 1996. Outstanding service contracts at December 31, 1996 expire as follows:
During 1997 $150,000 -
During 1998 $225,000 -
During 1999 $100,000 -
What amount should be reported as unearned service contract revenues in Proctor's December 31, 1996 balance sheet?
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A. B. C. D. E.A
Unearned service contract revenues relate to outstanding contracts for which the agreed service has not yet been provided. Thus, the amount to be reported as unearned service contract revenues covers all contracts that are outstanding at December 31, 1996 which totals $475,000 (150,000 + 225,000 + 100,000)