Question

On May 1, 2016, Varga Tech Services signed a $6,000 consulting contract with Shaffer Holdings. The contract requires Varga to provide computer technology support services whenever requested over the period from May 1, 2016, to April 30, 2017, with Shaffer paying the entire $6,000 on May 1, 2016.
How much revenue should Varga recognize in 2016? (Do not round intermediate calculation.)

Answer 1

Answer:

Varga should recognize $4,000 as revenue in 2016.

Explanation:

As the cash received in advance is recorded as unearned revenue which is a liability for the Varga Tech Services because they did not provide the services yet. On  December 31,  Eight months have passed and services for these month has been provided. So the revenue of 8 month months of 2016 will be recognized and recorded at year end.

Serive Contract = $6,000 for 12 months

Revenue Recognized in 2016 = $6,000 x 8/12 = $4,000