Each year, White Mountain Enterprises (WME) prepares a reconciliation schedule that compares its income statement with its statement of cash flows on both the direct and indirect method bases. In its 2018 income statement, WME reported $695,000 for service revenue from membership fees. WME received $681,000 cash in advance from members during 2018. In its reconciliation schedule, WME should:
A) Show a $14,000 negative adjustment to net income under the indirect method for the increase in deferred revenue.
B) Show a $14,000 negative adjustment to net income under the indirect method for the decrease in deferred revenue.
C) Show a $14,000 positive adjustment to net income under the indirect method for the increase in deferred revenue.
D) Show a $14,000 positive adjustment to net income under the indirect method for the decrease in deferred revenue.

Question

Quizplus · Accepted Answer

Deferred revenue, a liability account, increased by the cash received for $681,000 and decreased by the $695,000 revenue recognized. Thus, deferred revenue decreased by $14,000.

Each Year, White Mountain Enterprises (WME) Prepares a Reconciliation Schedule