Adjusting Entries - Case 4.1 - Financial and Managerial Accounting by Williams et all 15e

Solution of the first two options are given here.
a.

No adjusting entry is needed, because although the revenue was collected in advance on September 1, it has all been earned prior to year-end. Thus, inclusion of the entire amount in revenue of the period is correct.

b.

Three months’ revenue was collected in advance on December 1 and was credited to an unearned revenue account. At December 31, an adjusting entry is needed to recognize that one-third of this advance payment that has now been earned as revenue. The effects of this adjusting entry will be to reduce a liability (unearned revenue) and increase revenue recognized as earned in the period. Of course, recognizing revenue also increases owners’ equity.