State University sold all of its basketball tickets to its students for 15 home games on September 30 for $1,200,000 (basketball season starts November 1). Assuming the college basketball team played six home games prior to year-end, what adjusting journal entry (if any) is necessary on December 31, assuming the initial student ticket transactions were recorded on September 30?

Debit Deferred revenue      $480,000

Credit Revenue                    $480,000

Being entries to recognize cash received for revenue earned during the year.

Explanation:

The cash received from the students on 30 September will be accounted for in the cash account however, the corresponding entry is a liability known as deferred or unearned revenue.

As such the entries on that day will be

Debit Cash account      $1,200,000

Credit Deferred revenue  $1,200,000

Being entries to recognize cash received for revenue yet to be earned.

Since a total of 15 games were paid for and only 6 were played as at year end, amount earned

= (6/15) × $1,200,000

= $480,000

Hence adjusting entries required will be

Debit Deferred revenue      $480,000

Credit Revenue                    $480,000

Being entries to recognize cash received for revenue earned during the year.

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