Question

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Problem 10-6A Unearned revenues LO2 CHECK FIGURE: 2. $273,000 White Water Adventure is a travel adventure business that operates from about April to October each year. The company has an outstanding reputation for the quality of its tours and as a result pre-books customers a full year in advance. Customers must pay 40% at the time of booking and the balance on the completion date of the job. White Water records the 40% cash advance received from customers in the Unearned Revenues ac- count. The December 31, 2020, balance sheet shows Unearned Revenues totalling $329,000. During 2021, $384,000 of cash was collected in total from customers: $264,000 regarding completed tours during the year for customers who paid 40% down in 2020, and the balance representing the 40% prepayments for work to be done in 2022. Required 1. Prepare the entry to record the collection of cash in 2021. 2. Determine the balance in Unearned Revenue at December 31, 2021. Analysis Component: What would the impact be on the financial statement at year-end each year if White Water did not record the unearned revenues? What ratio would be affected?

Answer 1

Unearned Revenue Balance as on 31st december 2020	3,29,000
1
Particulars	Debit	Credit
Cash A/C                                          Dr	3,84,000
To Revenue A/C		2,64,000
To unearned revenue A/C		1,20,000
2
Balance In Unearned revenue A/C
Particulars	Amount
Balance as on 31st december 2020	3,29,000
Less : Revenue to be recognised	1,76,000
Add: Unearned revenue in 2021	1,20,000
Balance as on 31st december 2021	2,73,000
*264000 represents 60% of revenue
*40% of revenue would be 176000 which is unearned revenue in 2020 now to be recognised as income
Analysis of component
If the white water did not record un earned revenue then current ratio and profit ratios are being impacted
Since unearned revenue is a liability it should not go under revenue