Question

Get Fit Now gains a client who prepays $540 for a package of six physical training sessions. Get Fit Now collects the $540 in advance and will provide the training later. After four training sessions, what should Get Fit Now report on its income statement?

a. Service revenue of $360
b. Service revenue of $540
c. Unearned service revenue of $360
d. Cash of $180

Answer 1

a. Service revenue of $360

Step-by-step explanation:

Unearned service revenue for 6 sessions = $540

Unearned service revenue for 1 sessions = $540 / 6

Unearned service revenue for 1 sessions = $90

As four sessions are completed the revenue for these session will be recognized as follows:

Service service revenue for 4 sessions = $90 x 4

Service service revenue for 4 sessions = $360

Unearned revenue balance = $540 - $360 = $180

Service revenue of $360 will be reported on the income statement as Get fit only provided the 4 sessions out of 6, whereas unearned revenue and cash account will be reported on balance sheet with a value of $180 and $540 respectively.