Maroon & Orange Gym, Inc., uses the accrual method of accounting.The corporation sells memberships that entitle the member to use the facilities at any time.A one-year membership costs $480 ($480/12 = $40 per month); a two- year membership costs $720 ($720/24 = $30 per month).Cash payment is required at the beginning of the membership period.On July 1, 2019, the company sold a one-year membership and a two-year membership.For financial reporting purposes, Maroon reports the membership income ratably over the number of months involved.The company should report as gross income from the two contracts:

Question

Quizplus · Accepted Answer

The one-year membership generates $480 of revenue to be recognized over 12 months, or $40 per month. As of July 1, 2019, six months of revenue would be recognized for this membership, or $240.

The two-year membership generates $720 of revenue to be recognized over 24 months, or $30 per month. As of July 1, 2019, 18 months of revenue would be recognized for this membership, or $540.

Therefore, the total gross income from the two contracts as of July 1, 2019 is $240 + $540 = $780. This amount will be recognized over the remaining months of the memberships, so none of the other answer choices are correct.