FRA-II

bhuyanpk
Good Student
Posts: 14
Joined: Sat Aug 08, 2015 12:12 pm

FRA-II

Postby bhuyanpk » Mon Oct 05, 2015 10:55 am

How Should the proceeds recieved from advance sale of tickets toa sporting event be treated by the seller,assuming tickets are nonrefundable?

A.Unearned revenue is recognizedto the extent that costs are have been incurred
B.Revenue is recognized to the extents that costs have been incurred
C.Revenue is deffered until sporting event is held

In my opinion,this should be a clear case of Unearned revenue.So Option A should have been the answer whereas it is C.
Please can you explain each option

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edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

Re: FRA-II

Postby edupristine » Tue Oct 06, 2015 9:26 am

The deferred revenue is word used in place of unearned revenue. Option 'C' is like Unearned Revenue till the event is held. It is the correct option because the tickets are sold in advance and they are unearned because the event has not taken place till now. It is a liability until the company provides the promised goods or services (event has taken place). It will be treated as earned revenue only after the event will take place. Option 'A' is related to the uncertainty. That is why 'A' cannot be the answer.


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