Question

Hercules Workout World gains a client who prepays $ 570 for a package of six physical training sessions. Hercules Workout World collects the $ 570 in advance and will provide the training later. After four training​ sessions, what should Hercules Workout World report on its income statement assuming it uses the accrual basis accounting​ method?

Answer 1

$340

Step-by-step explanation:

When an amount is received in advance for service yet to be rendered, an asset and a liability is created in the books of the company that received the payment.

Given that Hercules Workout World gains a client who prepays $ 570 for a package of six physical training sessions.

It means that the cost of a package

= $570/6

= $85

After four training​ sessions, Hercules Workout World would have earned

= $85 × 4

= $340

This amount would be recognized as revenue earned in the income statement assuming it uses the accrual basis accounting​ method.