Question

Problem 7 : Ali Company sells tickets for an upcoming theatre season. All funds are paid upfront. It is the first year of operations for Ali Company. The revenue recognized during the year was $105,000 and the ending balance in unearned revenue is $75,000. How much cash was collected during the year?

Problem 8 : On October 1st, Max Company paid for six months of insurance coverage for their building. As of December 31st, Max Company had $5,000 in the prepaid insurance account. What was the total cost paid on October 1st for the six month policy?

Answer 1

Solution 7:

Cash collected during the year = Revenue recognized during the year + ending balance in unearned revenue

= $105,000 + $75000 = $180,000

Solution 8:

Period of insurance coverage = 6 months

Expired period upto December 31st = 3 months

Balance in Prepaid Insurance Account = $5000

Cost paid on October 1st = Balance in prepaid Account *6/3 = $5000*6/3 = $10,000