The TJ Company collects all service revenue in advance. The company showed a $12,500 liability on its December 31, 2011 balance sheet for unearned service. During 2012, customers paid $50,000 for future services, and the income statement for the year ended December 31, 2012 reported service revenue of $52,700.

What amount for the liability unearned service revenue will appear on the balance sheet at December 31, 2012? Can you please explain to me how to reach the correct answer?

Since the customers pay for all services in advance you need to add the $50,000 from the customers to the liability acount.

Now to calculate the ending liability amount you need to take the number calculated above and subract the service revenue.

Thank you very much! This makes sense to me now, I was making it a lot harder than I should have.

I also had the same problem when I first started studying accounting, so I totally understand .