A company receives $6,500 for two season tickets sold on September 1. If $2,500 is earned by December 31, the adjusting entry made at that time is a debit to Cash, $2,500, and a credit to Ticket Revenue, $2,500. A. TrueB. False

Question

Business

Melina Mills

12 February, 02:52

A company receives $6,500 for two season tickets sold on September 1. If $2,500 is earned by December 31, the adjusting entry made at that time is a debit to Cash, $2,500, and a credit to Ticket Revenue, $2,500. A. TrueB. False

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Answers (1)

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Roman Black · Answer 1

The answer is false.

Explanation:

The $6,500 received for two seasons ticket is unearned revenue at September 1.

Unearned revenue have been received in advance but the customer has not enjoyed the service.

As the company enjoys this service monthly till the subscription finishes, revenue will be recognized and unearned revenue which is a liability in the balance sheet will reduce by the same value.

Two seasons ticket is 2 years (24 months). So what will be recognized monthly will be $270.83 ($6,500/24months)

September 1 through December 31 is 4 months.

So the adjusting entry at December 31 is 4 x $270.83

=$1,083.32