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Unearned Contract Revenues

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Felton Co. sells major household appliance service contracts for cash. The service contracts are for a 1-year, 2-year, or 3-year period. Cash receipts from contracts are credited to unearned service contract revenues. This account had a balance of 480,000 on December 31, 2009 before year-end adjustment. Service contract costs are charged as incurred to the service contract expense account, which had a balance of 120,000 on December 31, 2009. Outstanding service contracts at December 31, 2009 expire as follows:
December 2010 - $100,000
December 2011 - $160,000
December 2012 - $70,000

What amount should be reported as unearned service contract revenues in Felton's December 31, 2009 balance sheet?
a) 360,000
b) 330,000
c) 240,000
d) 220,000

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The solution provides the exact calculation to determine the correct amount of unearned service contract revenues for Felton Co.

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