Question

X Enterprises owns a professional ice hockey team, the Rockford Penguins. The company sells season tickets for its upcoming 2020-2021 season and receives $816,000 cash. The season starts November 1 and ends on April 30, with five home games occurring monthly over the six-month hockey season. Assume that McKinnon Enterprises' fiscal year ends on December 31.

Required: 1) Prepare journal entries to record all transactions and adjustments necessary through 2020-2021 hockey season.

2)Indicate how the season tickets will be reported on the income statement of 2020, the balance sheet at the end of 2020 and the statement of cash flows of 2020.

Answer 1

The amount received by sale of ticket = $816,000

The 6 month season starts November 1, 2020 and ends on April 30, 2020.

Unearned sales revenue for 6 months = $816,000
Sales revenue for 1 month = $816,000 ÷ 6 = $136,000

1)

While receiving cash through sale of tickets the journal entry recorded would be , Cash debit and Unearned sales revenue credit for $816,000.
At the end of the fiscal year, December 31, 2020 an adjusting entry is recorded to effect the unearned revenue earned for 2 months, November 1, 2020 to December 31, 2020. The 2 month's revenue is calculated as, $136,000 × 2 = $272,000. The journal entry would be Unearned revenue debit and Sales revenue credit for $272,000.

At the end of the hockey season, on April 30, another adjusting entry is recorded to effect the unearned revenue earned for 4 months, January 1, 2021 to April 30, 2021. The 4 month's revenue is calculated as, $136,000 × 4 = $544,000. The journal entry would be Unearned revenue debit and Sales revenue credit for $544,000.

2) In the 2020 income statement, the unearned revenue earned until the end of the fiscal year December 31, amounting $272,000 would be reported as sales revenue.

In the Balance sheet at the end of 2020, The unearned revenue after adjusting 2 month's revenue earned would be reported in the Liability side, current liability section of the Balance Sheet. The amount reported would be, total unearned revenue less, unearned revenue earned until December 31, 2020. That is, $816,000 - $272,000 = $544,000.
In the cash flow statement of 2020, Cash received from sale of season tickets would be reported as operating activity with the full amount of cash received during 2020, which was amounted to $816,000.