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Smith Co. sells major household
appliance service contracts for cash. The service contracts are for a one-year,
two-year, or three-year period. Cash receipts from contracts are credited to
unearned service contract revenues. This account had a balance of $480,000 at
December 31, 2013 before year-end adjustment. Service contract costs are
charged as incurred to the service contract expense account, which had a
balance of $120,000 at December 31, 2013. Outstanding service contracts at
December 31, 2013 expire as follows:
During 2014 During
2015 During 2016
$100,000 $160,000 $70,000
What amount should be reported as unearned service
contract revenues in Smith’s December 31, 2013 balance sheet?
a. $360,000.
b. $330,000.
c. $240,000.
d. $220,000.
