Question

Mallon University operates three​ 10-week semesters, beginning September​ 1, December​ 1, and March 1.​ For financial reporting​ purposes, Mallon reports on a​ calendar-year basis. The​ school's policy is that for every tuition dollar​ received, 50% is recognized as revenue one month into the​ semester, 25% is recognized after two​ months, and the last​ 25% is recognized at the end of the semester. Mallon receives​ $150,000 in cash for each​ semester, with full payment received on the first day of each semester. The journal entry for year 1 will include which of the following debits or​ credits?

A

Debit to cash of​ $225,000.

B.

Credit to deferred revenue of​ $150,000.

C.

Credit to revenue of​ $225,000.

D.

Debit to deferred revenue of​ $75,000.

I want to know the process of how to get the answer.

Answer 1

Correct answer is C. Credit to revenue of $225,000

Cash is received in advance for semester of $150,000

So in year begining September 1 cash is received for $150,000 and revenue is recognised over september october & november

Cash of $150,000 is received on December 1 at start of Semester 2

So revenue is recognised only 50% in 1 month so revenue recognised till December 31 for semester 2

=$150,000*50%=$75,000

So Tota revenue recognised in Year1=$150,000(Semester 1)+$75,000(Semester 2)

Remaining revenue is recognised in month of January=150,000*25%=$37,500

& rest in February=$150,000*25%=$37,500

Jouranl entry to record 1st year revenue

Date	General journal	Debit	Credit
	Cash	$300,000
	Revenue		$225,000
	Deferred revenue		$75,000
	(To record revenue)