Wave Inn is a resort located in Canada. During December 2013 Wave Inn collects $150,000 cash related to a conference booked by the Spin Jammers. The conference is scheduled for February 12 and 13, 2014. Which of the following is true regarding how this transaction is reported on the December 31, 2013 statement of financial position?
A) Spin Jammers reports unearned revenue of $150,000.
B) Wave Inn reports a prepaid asset of $150,000.
C) Wave Inn reports unearned revenue of $150,000.
D) All of these answer choices are correct.

Question

Quizplus · Accepted Answer

The $150,000 cash collected in December 2013 is considered unearned revenue until the conference takes place in February 2014. Therefore, Wave Inn should report the $150,000 as unearned revenue on their December 31, 2013 statement of financial position. The Spin Jammers would not report anything related to this transaction until the conference takes place, at which point they would report the expense and reduce the unearned revenue on their own financial statements. Option A is incorrect because the Spin Jammers would not report anything related to this transaction on their financial statements until the conference takes place. Option B is incorrect because a prepaid asset refers to a payment made for goods or services that are expected to be received in the future, whereas unearned revenue refers specifically to payments received for goods or services that have not yet been provided.

Wave Inn Is a Resort Located in Canada