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

a. Entry on the first day of the month for setting up a $60K prepaid account balance:
Date	Acccounts Title	Debit $	Credit $
1-Jan	Cash	60000
	Unearned ride charges		60000
No, change if received at the first day or last day of month.
b. To record the availing of $30K rides at the end of month:
Date	Acccounts Title	Debit $	Credit $
31-Jan	Unearned ride charges	30000
	Earned ride charges		30000
To refund $20K unused balance of the account to university:
Date	Acccounts Title	Debit $	Credit $
31-Jan	Unearned ride charges	20000
	Cash		20000
c. To record the availing $75K rides above the Prepaid account balance of $50K.
Date	Acccounts Title	Debit $	Credit $
31-Jan	Unearned ride charges	50000
	Cash	25000
	Earned ride charges		75000
d. To record a $10 student ride while granting a 10% discount:
Date	Acccounts Title	Debit $	Credit $
31-Jan	Unearned ride charges	9
	Trade discount	1
	Earned ride charges		10
e. If University does not pay for 6 months while utilising $100K rides, the entry would be
Date	Acccounts Title	Debit $	Credit $
31-Jan	Accounts Receivable	100000
	Earned ride charges		100000
Reflected in Balance Sheet:
	Assets:
	Current Assets:
	Accounts Receivable	$100,000
Reflected in Profit & Loss account:
	Revenues:
	Ride Charges	$100,000