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Folks Company sells appliance service contracts agreeing to repair appliances for two - year period
Folks Company sells appliance service contracts agreeing to repair appliances
for two
-
year period.
The past experience is that, of the total amount spent for repairs on service contracts, 40%
is incurred evenly during the fi
rst contract year and 60% is incurred evenly during the
second contract year.
Receipts from service contract sales are P500,000 for 2020 and P600,000 for 2021.
Receipts from contracts are credited to unearned service revenue. All sales are made evenly
dur
ing the year.
Required:
1.
What is the contract revenue for 2020?
2.
What is the unearned revenue on December 31, 2020?
3.
What is the contract revenue for 2021?
4.
What is the unearned revenue on December 31, 2021?
Expert Solution
Contract revenue for 2020;
Revenue= Sales for 2020* Revenue to be recognized
= 500000* 40%
= 200000
Unearned revenue for 2020;
Unearned Revenue= Sales for 2020* Revenue to be recognized
=500000* 60%
=300000
Contract revenue for 2021;
Revenue= Sales for 2021* Revenue to be recognized
= 600000* 40%
= 240000
Unearned revenue for 2021;
Unearned Revenue= Sales for 2021* Revenue to be recognized
= 600000 *60%
= 360000
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