Question

On January 1, Northern College received $1,260,000 from its students for the spring semester that it recorded in Unearned Revenue. The term spans four months beginning on January 1 and the college earns the revenue evenly over the months of the term. Assuming the college prepares adjustments on January 31, what amount of tuition revenue should the college recognize for the month of January? Multiple Choice $1,260,000 $945,000. Multiple Choice $1,260,000. $945,000 $315,000 $630,000. $860,000

Answer 1

Northern College should recognize $315,000 in tuition revenue for January, dividing the total payment for the term of $1,260,000 evenly by four months according to the matching principle.

The amount of tuition revenue Northern College should recognize for the month of January is $315,000. The total payment of $1,260,000 received is for a four-month term, and revenue should be recognized evenly across these months. By dividing the total amount by four, we calculate the revenue for January: $1,260,000 / 4 = $315,000.

This process is known as revenue recognition and adheres to the matching principle in accounting, which states that revenues and related expenses should be matched in the period they are incurred. Since the college provides education services over the term, it earns the revenue gradually, not all at once when payment is received.

Northern College would adjust its accounts by reducing the Unearned Revenue account by $315,000 and increasing the Tuition Revenue account by the same amount for the month of January.