Question

ASSUME IN THE WINTER OF 2018, THE X COMPANY SOLD RESERVED TICKETS

FOR ITS 41 HOME GAMES OF THE 2018-2019 SEASON FOR $25M

THE GAMES WOULD BE PLAYED FROM OCTOBER 2020 TO APRIL 2021. THE MONTHLY NUMBER OF HOME GAMES FOLLOWS:

MONTH	GAMES
OCTOBER	5
NOVEMBER	6
DECEMBER	6
JANUARY	6
FEBRUARY	6
MARCH	6
APRIL	6
TOTAL	41

WHAT IS THE ACCOUNTING ENTRY RECORDING THE SALES OF RESERVED TICKETS?

WHAT IS THE AMOUNT OF REVENUE EARNED IN THE OCTOBER MONTH?

WHAT IS THE AMOUNT OF UNEARNED REVENUE AS AT DECEMBER 31st?

IS THIS AN ASSET LIABILITY OR SOME SORT OF OTHER TYPE OF ACCOUNT?

EXPLAIN BRIEFLY

Answer 1

Unearned Revenue is nothing but revenue recieved in advance but earned only when it is performed.

A. Sale of Reserved Tickets

$ in Million    $ in Million

Cash A/C Dr 25

To Unearned Ticket Revenue A/c    25

(Recording Sale of Reserved Tickets)

B. Revenue in October

Unearned Ticket Revenue A/C Dr 3.05*

To Ticket Revenue A/C 3.05

(Revenue Earned in Oct)

* Calculation

Total Revenue = $25 million

Total Matches = 41

Revenue per match = 25/41

=$.61 million

Revenue for month of Oct = .61 x 5 matches

Revenue for the month of Oct is $3.05 million

C. Amount of Unearned Revenue as of Dec 31

Total Unearned Revenue : $ 25 Million

Less: Revenue in Oct $ 3.05 Million -

Revenue in Nov $ 3.66 Million -

Revenue in Dec $ 3.66 Million -

Total Unearned Revenue

As of Dec 31 is $14.63 Million

D. Unearned Revenue

Unearned revenue is treated as Current Liablity, because we are certain about the liablity with respect to time and amount. Once the revenue is earned over the course of time,the unearned revenue will be tallied and revenue will be spread out. Journal entries are recorded at the time of sales and at the end of each month to recognize the revenue in this case.