Question

Ticketsales, Inc., receives $5,000,000 cash in advance ticket sales for a four-date tour of Bon Jovi. Record the advance ticket sales on October 31. Record the revenue earned for the first concert date of November 5, assuming it represents one-fourth of the advance ticket sales. Ticketsales, Inc. initially records prepaid and unearned items in balance sheet accounts.

Answer 1

Answer:

October 31:

Dr Cash                          $5,000,000

Cr Unearned revenue                          $5,000,000

On November 5:

Dr Unearned revenue    $1,250,000

Cr Earned revenue                             $1,250,000

Explanation:

The $5,000,000 advance ticket sales increases cash inflows by $5,000,000 hence a debit of $5,000,000 is posted to cash account and a corresponding credited is shown in the unearned revenue account as a liability.

On November 5, the one-fourth of the unearned can be recognized by debiting unearned revenue with $1,250,000($5,000,000/4) and credit to earned revenue of $1,250,000

Answer 2

Answer:

October 31   Cash                                              $5,000,000 Dr

                         Unearned ticket Revenue           $5,000,000 Cr

November 5  Unearned ticket revenue             $1,250,000 Dr

                             Ticket Revenue                                 $1,250,000 Cr

Explanation:

The ticket revenue is earned in advance and is not earned yet. Thus, the entry to record the receipt of ticket revenue in advance will increase the cash and cause a debit to the cash account of the total amount of revenue received. The concerts are yet to be done so it is unearned revenue and is a liability for the company. Thus, there will be a credit to unearned ticket revenue for the amount of cash received.

When the first concert is done, one fourth of the revenue is earned so it will cause a debit to unearned service revenue for 5000000 / 4 = 1250000 and a credit to the service revenue of 1250000