The complete question is as under:
Allen Company is hired on December 15, 2016 to perform services, beginning on December 16, 2016. Under this agreement, Allen will earn $4,500 monthly and receive payment on January 15, 2017. What amount of service revenue should be recorded for the year ending December 31, 2016?
A. 0
B. $4500
C. $2250
D. There is not enough information to answer this
Answer:
Option C- $2250
Explanation:
Option C is correct because according to the accrual accounting, the salary that has be accrued for the services rendered by the Allen company will earn monthly $4500 on every 15 of the month. On 31 December, the half of the $4500 has been earned by the Allen and the company owes him in legal terms $2250 (Half of $4500). This means the Allen Company must recognize its sale $2250 and the company that contracted Allen must recognize expenses of $2250 at 31 December, 2017.
