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6 July, 04:47

Mary signed up and paid $960 for a 6 month ceramics course on June 1st with Choplet Ceramics. As of August 1st, Choplet's accounting records would indicate:

A. $320 of revenue, $640 of accounts receivable

B.$320 of revenue, $640 of deferred revenue

C. $960 of revenue, $960 of cash

D. $640 of revenue, $320 of accounts receivable

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  1. 6 July, 06:14
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    Answer: The correct answer B.$320 of revenue, $640 of deferred revenue.

    Explanation: $960 cash was received by Choplet Ceramics for the 6 months course. Choplet Ceramics would have passed these entries upon receipt of the cash: Debit Cash $960 Credit Deferred revenue $960. On a monthly basis, this amount would be unwound to revenue on a straighline amortization basis, $960 / 6 months = $160. Since 2 months had already passed, the amount of revenue to be recognized would be 2 months * $160 or 2/6 * $960 giving $320. Therefore, as at 1 August, the amount in revenue would be $320 while deferred revenue balance would be $640.
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