Question

The Maroon & Orange Gym, Inc., uses the accrual method of accounting. The corporation sells memberships that entitle the member to use the facilities at any time. A one-year membership costs $480 ($480/12 = $40 per month); a two-year membership costs $720 ($720/24 = $30 per month). Cash payment is required at the beginning of the membership period. On July 1, 2014, the company sold a one-year membership and a two-year membership. The company should report as gross income from the two contracts:(A) $1,200 in 2014.(B) $960 in 2014.(C) $180 in 2016.(D) $780 in 2015.(E) None of these.

Answer 1

(C) $180 in 2016

Step-by-step explanation:

July 1st, 2014:

a one-year membership: 480

a two-year membership: 720

At year end, December 31th 2014 the company will recognize:

6 months of revenue for each membership:

one-year: $ 40 x 6 = 240

two-year: $ 30 x 6 = 180

Total 420

At 2015 it will earn:

the remaining 6 month in the one-year and a full year in the other

one-year $ 40 x 6 = 240

two-year $ 30 x 12 = 360

total 600

At 2016 will recognize:

only six month for the two-year.

two year- 30 x 6 = 180