Lake Co. receives nonrefundable advance payments with special orders for containers constructed to customer specifications. Related information for 2009 is as follows ($ in millions): What amount should Lake report as a current liability for advances from customers in its Dec. 31, 2009, balance sheet?

Question

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The nonrefundable advance payments received from customers for special orders are considered as unearned revenue and should be recorded as a liability until the company has performed its obligations. Therefore, Lake Co. should report $80 million ($50 + $30) as a current liability for advances from customers in its Dec. 31, 2009, balance sheet. Option A is incorrect because the company has received advance payments from customers that should be recognized as a liability. Option C and D are also incorrect as they do not reflect the correct calculation of the unearned revenue liability.

Lake Co Receives Nonrefundable Advance Payments with Special Orders for Containers