Question

1. on october 1, year 1, yd collected $21,600 for consulting services it agreed to provide during the coming year. 2. adjusted the accounts to reflect the amount of consulting service revenue recognized in year 1. required: based on this information alone: a. record the events under an accounting equation. b. prepare an income statement, balance sheet, and statement of cash flows for the year 1 accounting period. c. ignoring all other future events, what is the amount of service revenue that would be recognized in year 2? complete this question by entering your answers in the tabs below. record the events under an accounting equation. note: do not round intermediate calculations. enter any decreases to account balances with a minus sign. not all cells require input.

Explanation:

Step1: Record initial collection

On October 1, Year 1, cash is received in advance for services. Cash (an asset) increases by $21,600 and unearned revenue (a liability) increases by $21,600. In the accounting - equation: Assets (Cash) = Liabilities (Unearned Revenue)+Stockholders' Equity (Retained Earnings), so Cash = $21,600, Unearned Revenue = $21,600, Retained Earnings = $0.

Step2: Calculate revenue recognized in Year 1

The services are for a year. From October 1 - December 31, Year 1, is 3 months. The total period is 12 months. The revenue recognized in Year 1 is $\frac{3}{12}\times21600 = 5400$. Unearned revenue decreases by $5,400 and retained earnings (through service revenue) increase by $5,400.

Step3: Prepare income statement for Year 1

Revenue = $5,400. There are no other expenses mentioned, so Net Income = $5,400.

Step4: Prepare balance sheet for Year 1

Cash = $21,600. Unearned Revenue = $21600 - 5400=16200$. Retained Earnings = $5,400.

Step5: Prepare statement of cash flows for Year 1

Cash from operating activities = $21,600 (cash received for services).

Step6: Calculate revenue recognized in Year 2

The remaining revenue to be recognized in Year 2 is $\frac{9}{12}\times21600 = 16200$.

Answer:

Req A:

Event	Assets (Cash)	=	Liabilities (Unearned Revenue)	+	Stockholders' Equity (Retained Earnings)
Adjusting		=	-$5,400	+	$5,400

Req B1 (Income statement for Year 1):

Particulars	Amount
Net Income	$5,400

Req B2 (Balance sheet for Year 1):

Assets	Amount	Liabilities and Stockholders' Equity	Amount
		Retained Earnings	$5,400
Total Assets	$21,600	Total Liabilities and Stockholders' Equity	$21,600

Req B3 (Statement of cash flows for Year 1):

Cash Flows from Operating Activities	Amount

Req C:
The amount of service revenue recognized in Year 2 is $16,200.