The amount of unearned revenue related to the 2011 contract is computed as follows: The average unearned portion of the 2011 contracts is one and one-half years (two years minus one-half year), the last half of the first contract year and all of the second contract year. The amount of unearned revenue related to 2010 contract is computed as following: The average unearned portion of the 2010 contracts is one-half year (two years minus one and one-half years), the last half of the second contract year. Similarly, the 2011 contracts range from zero years expired to one year expired, for an average of one-half year expired. Therefore, the 2010 contracts range from one year expired (if sold on 12/31/10) to two years expired (if sold on 1/1/10), for an average of one and one-half years expired. What amount should Cobb report as unearned service contract revenue at Dec 31, 2011?Īll contract sales are made evenly during the year. Assume that all contract sales are made evenly during the year. Receipts from contracts are credited to unearned service contract revenue. Receipts from service contract sales for 2 years ended Dec 31, 2011, are as follows: Cobb's past experience is that, of the total dollars spent for repairs on service contracts, 40% is incurred evenly during the first contract year and 60% evenly during the second contract year. Topic: Unearned Service Revenue-Wiley ( Topic Closed)Ĭobb Company sells appliance service contracts agreeing to repair appliances for a two-year period.