Allen Company is hired on June 30, 2016 to perform services, beginning on July 1, 2016. Under this agreement, Allen will earn $4,500 annually and receive payment on June 30, 2017. What amount of service revenue should be recorded for the year ending December 31, 2016

The amount of service revenue should be recorded for the year ending December 31, 2016: $2,250

Explanation:

Allen Company performs services from beginning on July 1, 2016.

Following the Accrual accounting - an accounting method that revenue or expenses are recorded when a transaction occurs rather than when payment is received or made.

Allen will earn $4,500 annually and receive payment on June 30, 2017. For the year ending December 31, 2016, Allen Company has performed services for 6 months.

The amount of service revenue = ($4,500/12)x6 = $2,250

The entry will be:

Debit Accounts Receivable $2,250

Credit Service revenue $2,250

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