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Mallon University operates three? 10-week semesters, beginning September? 1, December? 1, and March 1
Mallon University operates three? 10-week semesters, beginning September? 1, December? 1, and March 1.? For financial reporting?purposes, Mallon reports on a? calendar-year basis. The? school's policy is that for every tuition dollar? received, 50% is recognized as revenue one month into the? semester, 25% is recognized after two? months, and the last? 25% is recognized at the end of the semester. Mallon receives? $150,000 in cash for each? semester, with full payment received on the first day of each semester. The journal entry for year 1 will include which of the following debits or? credits?
A
Debit to cash of? $225,000.
B.
Credit to deferred revenue of? $150,000.
C.
Credit to revenue of? $225,000.
D.
Debit to deferred revenue of? $75,000.
I want to know the process of how to get the answer.
Expert Solution
Correct answer is C. Credit to revenue of $225,000
Cash is received in advance for semester of $150,000
So in year begining September 1 cash is received for $150,000 and revenue is recognised over september october & november
Cash of $150,000 is received on December 1 at start of Semester 2
So revenue is recognised only 50% in 1 month so revenue recognised till December 31 for semester 2
=$150,000*50%=$75,000
So Tota revenue recognised in Year1=$150,000(Semester 1)+$75,000(Semester 2)
Remaining revenue is recognised in month of January=150,000*25%=$37,500
& rest in February=$150,000*25%=$37,500
Jouranl entry to record 1st year revenue
| Date | General journal | Debit | Credit |
| Cash | $300,000 | ||
| Revenue | $225,000 | ||
| Deferred revenue | $75,000 | ||
| (To record revenue) |
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