Question

LYFT enters into an agreement with University to set up a $60K prepaid account balance to be used for student rides from University sporting events. University pays at the beginning of each month and the balance is drawn down as trips are completed during the month. The contract runs from 7/1/2019 to 12/31/2019.

a. What entry(ies) does LYFT record on the first day of the month for this transaction? How does the entry change if LYFT receives the cash on the first day versus if receives the cash on the last day of the month?

B. Assuming LYFT aggregates and books the trips against University's balance at month-end, what entry is recorded at the end of the month if only $30K in rides are taken? What entry is recorded if the $20K unused balance is refunded to University at the end of the month?

c. If the contract is set up that any usage beyond the $50K will be billed to University at the end of the month, what entry(ies) would be recorded at month end if $75K in rides were taken during the period?

d. If LYFT grants all students enrolled at University a 10% discount, what would the entry(ies) be to record a $10 student ride from a University sporting event?

e. If the University does not pay for 6 months but utilizes $100K in rides, how would this be reflected in the 12/31/2019 balance sheet? What P&L considerations would you have to assess?

Answer 1

The question has 5 sub questions. As per the company policy I am answering only for the first 4.

1) On start of month. -

Bank A/c Dr 60,000

To, Advance for rides A/c ( University A/c ) 60,000

( Being advance received )

If cash is received at the end of the month , the LFYT will go on recognising revenue as and when rides are availed by the students. At the end of the month , there would be a Amount receivable asset standing in the books against which this amount of 60K will be adjusted. The entry would be as follows :-

Bank Ac Dr. 60,000

To, Revenue receivable Ac ( University A/c ). 60,0000

( Being outstanding balance of revenue collected )

2) University A/c ( Advance revenue A/c) Dr. 50,000

To, Revenue A/c. 30,000

To , Bank Account. 20,000

( Being revenue recorded )

3). University Ac Dr. 75,000

To , revenue Ac. 75,000

( Being revenue recorded)

Bank Ac Dr. 25,000

To , University Ac. 25,000

(Being outstanding balance of revenue collected)

4). University Ac. Dr 9

Discount Ac. Dr. 1

To , Revenue Ac. 10

( Being revenue recorded )