On October 1, Mathis Company Entered into a Six-Month Contract \begin{array}{l}\text { Cash }&3,000\ \\\quad \text { Service Revenue }&3,000\\end{array}

question 8

Multiple Choice

On October 1, Mathis Company entered into a six-month contract with Lewis Company to provide custodial services on a daily basis. The terms of the contract state that the cost will be $3,000 per month and Mathis will bill Lewis at the end of every two months. If Mathis is a calendar year company, what is the appropriate adjusting entry at December 31?

• A)
• \(\begin{array}{l}
• \text { Cash }&3,000\ \\
• \quad \text { Service Revenue }&3,000\
• \end{array} \)
• B)
• \(\begin{array}{cc}
• \text { Accounts Receivable } & 3,000 \\
• \text { Service Revenue } & 3,000
• \end{array}\)
• C)
• Service Revenue \( \quad 3,000 \)
• Accounts Receivable \( \quad 3,000 \)
• D)
• \(\begin{array}{lr}
• \text { Accounts Receivable } & 3,000 \\
• \text { Cash } & 3,000
• \end{array}\)

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Definitions:

Equity Method

An accounting technique used for recording investments in associate companies, where the investment is initially recorded at cost and adjusted thereafter for the post-acquisition change in the investor's share of the investee's net assets.

Equipment Account

An account on the balance sheet that represents the current value of the equipment owned by a company after adjusting for depreciation and amortization.

Acquisition Method

An accounting approach used for consolidating the financial statements of a parent company and its subsidiaries to present as one entity.

Equity Method

Equity Method is an accounting technique used to record investments in other companies, where the investing company has significant influence but does not have full control or majority ownership.