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Leokris
1 month ago
14

The Maroon & Orange Gym, Inc., uses the accrual method of accounting. The corporation sells memberships that entitle the mem

ber 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, 2017, 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 2017.b. $960 in 2017.c. $180 in 2019.d. $780 in 2018e. None of these.
Business
1 answer:
arsen [3.4K]1 month ago
4 0

Answer:

c. $180 in 2019

Explanation:

The entity employs the accrual accounting method, where revenues are documented on the income statement once earned, regardless of the actual receipt of cash.

On July 1, 2017, the organization sold one-year and two-year memberships. In 2017, The Maroon & Orange Gym, Inc. delivered services for half a year for each contract.

Gross income from one-year membership in 2017 = $40 x 6 = $240

Gross income from two-year membership in 2017 = $30 x 6 = $180

Overall revenue = $240 + $180 = $420

In 2018, the company continued providing services for the remaining 6 months of the one-year membership and the entire 12 months of the two-year membership.

Gross income for the one-year membership in 2018 = $40 x 6 = $240

Gross income from two-year membership in 2018 = $30 x 12= $360

Total income = $240 + $360 = $600

In 2019, the company wrapped up services for the last 6 months of the two-year membership.

Gross income in 2019 = $30 x 6= $180

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