Daring Dolls, Inc. received an order to provide SuperDolls for a big department store. The store...
- Daring Dolls, Inc. received an order to provide SuperDolls for
a big department store. The store paid Daring Dolls in advance for
the order of SuperDolls. Which of the following describes what will
occur when Daring Dolls recognizes revenue?
- Cash will be increased.
- Accounts receivable will be increased.
- Unearned revenue will be decreased.
- Unearned revenue will be increase
Homework Answers
Option (c) is correct
When Daring dolls received advance payment for Superdolls, they would have recorded this transaction as unearned revenue. Because till the revenue is recognized, this transaction will be treated as unearned revenue. When Daring dolls recognize this transaction as revenue, then it will be earned revenue. So, balance of unearned revenue (recognized earlier) will be decreased.
Option (a) is incorrect because cash has already been received earlier as advance. When the related revenue is recognized, there will be no effect on cash, which has already been received.
Option (b) is incorrect because its accounts receivable will not be increased as the payment is already received and no receivable is pending.
Option (d) is incorrect because unearned revenue will be decreased as per explanation (c) given above.
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