Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 2

Calculate earned revenues Big Blue University has a fiscal year that ends on June 30. The 2010 summer session of the university runs from June 9 through July 28. Total tuition paid by students for the summer session amounted to $112,000.

Required:

a. How much revenue should be reflected in the fiscal year ended June 30, 2010? Explain your answer.

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b. Would your answer to part a be any different if the university had a tuition refund policy that no tuition would be refunded after the end of the third week of summer session classes? Explain your answer.

Step 1 of 3

Earned revenue: When a company has completed, or substantially completed, all the activities it has undertaken to perform then only it is entitled to revenue benefits.

Calculate earned revenue

a.

A fiscal year timeline will look like as follows:

From the above timeline, the company will recognize 21/49 of tuition fee, since 3/7(21/49) portion of the particular summer session occurs only within the first fiscal year. The summer session expenses would be accrued, so that an appropriate matching of revenue with expense may occurs in each of fiscal year.

Thus, the revenue amount for the year ending June 30, 2013 is as follows:

Total tuition paid by students for the summer session amounted to $112,000