Novella Company sells annual memberships to its auto club. The memberships cost $300 each. On January 1, Novella sold 16,000 memberships and received cash. How should Novella record the receipt of cash on January 1?

Question

Quizplus · Accepted Answer

Novella should record the receipt of cash as a liability of $4,800,000 because the memberships are for future services to be provided throughout the year, creating an obligation to the members.

Novella Company Sells Annual Memberships to Its Auto Club