Question

In November of 2019, a charitable organization with a December 31 year end begins selling tickets at $100 each to a February 14, 2020, fundraising event. The event includes dinner that has a fair value of $30. The charitable organization will hold the event only if it sells 100 tickets by January 31, 2020. The organization sold 75 tickets by December 31.

Based on the above information, discuss the following:

1.   Does the receipt of $100 per ticket sold include contribution revenue?

2.   If a contribution is inherent in the sales of the tickets, do any conditions or restrictions exist that would affect the use of the contribution?

3.   Based on your answers to #1 and #2, would you recognize the ticket sales in the 2019 financial statements? If so, how would you recognize the sales? If not, why?

Answer 1

1) yes, the receipts of ticket include the contribution...

Contribution is the amount of earnings remaining after all direct costs have been subtracted from revenue.

In simple words,

CONTRIBUTION REVENUE = SALES PRICE - VARIABLE COST

AS PER QUES, SALE PRICE OF TICKET = 100 (per person)

dinner expense =30 (per person)

so ,contribution =100-30

=70

2)yes the condition is exist

the event will be held only when 100 tickets are sold upto 31st jan 2020,

so, the contribution revenue can be utilised after selling 100 tickets ......if 100 tickets are not sold upto 31s jan 2020 then the ticket price will be refund ..

3)The revenue is recognized when, the goods and services (performance obligations) are transferred. in simple words, revenues be shown on the income statement in the period in which they are earned, not in the period when the cash is collected. . This is part of the accrual basis of accounting..

revenue collected upto 31 dec 2019 = 75 *100

=$7500

so, revenue of $7500 can not shown under income statement because the event is not held upto 31 dec 2019

this amount will be shown under the head of current liablity (balance sheet)