Question on unearned revenue revenue

gjcxc

From Schweser Reading #33

5. How should the proceeds received from the advance sale of tickets to a sporting event be treated by the seller, assuming the tickets are nonrefundable?

A. Unearned revenue is recognized to the extent that costs have been incurred.
B. Revenue is recognized to the extent that costs have been incurred.
C. Revenue is deferred until the sporting even is held.

The correct answer is C, but can't A be correct as well?

Unearned revenue is "cash collected in advance of providing goods and services." So why can't the advanced sale be unearned revenue?

luckygiftvn

No, answer is def. C

You might be confusing this with capitalizing.

former

wait scratch that last part, I was totally not paying attention. haha

I meant to say it depends on the business. A great deal of accounting is focused on the matching principle, and avoiding wild swings in revenue vs costs.

You were prob. thinking about the % completion method. but you have strict conditions you must meet to use that method of accounting. Large construction projects or airplane buildings can fall into those.

economicz

100% of the proceeds will be unearned revenue (a liability account remember) until the revenue has been earned, not just to the extent that costs have been incurred.

If you only recorded the proceeds to the extent of costs as unearned revenue where would you record the proceeds in excess of the costs?

chunty

Canadian_Accountant Wrote:
-------------------------------------------------------
> 100% of the proceeds will be unearned revenue (a
> liability account remember) until the revenue has
> been earned, not just to the extent that costs
> have been incurred.
>
> If you only recorded the proceeds to the extent of
> costs as unearned revenue where would you record
> the proceeds in excess of the costs?


correct

Colum

The deferred revenue is interchangeably used with unearned revenue. C option is like Unearned Revenue till the event is held. That is why its the correct answer because the tickets are sold in advance and they are unearned, a liability, it would be recognized as revenue after the event is held. Option A is irrelevant as it is related to the uncertainty

svgleeson

A is related to long term contracts though wrongly stated in the same sense.