Freedom Air collected $172,000 in February for charter flights booked for March

Question

Freedom Air collected $172,000 in February for charter flights booked for March and April and properly recorded the amount collected as Unearned Charter Revenue. The flights provided during March earned revenue of $89,700. The correct entry to record the revenue earned in March is: debit Unearned Charter Revenue $89,700; credit Accounts Receivable $89,700. debit Cash $89,700; credit Flight Revenue $89,700. debit Unearned Charter Revenue $172,000; credit Flight Revenue $172,000. debit Flight Revenue $82,300; credit Accounts Receivable 82,300. debit Unearned Charter Revenue $89,700; credit Flight Revenue $89,700.

Explanation / Answer

The correct entry to record the revenue earned in March is:

Debit Unearned Charter Revenue $89,700; credit Flight Revenue $89,700.

Explanation;

At the time of receipt of $172000 for March and April following entry was made;

Debit Cash $172000; credit Unearned charter revenue $172000 but at the time of earned this revenue unearned charter revenue account will be reversed by debiting it $89700 and revenue will be recognized by crediting Flight revenue $89700.

As amount is already collected in cash in February so there is no role of cash and account receivables in the correct entry for March and April.

Thus correct entry is as follow;

Date

Accounts & Explanation

Debit

Credit

March

Unearned charter revenue

$89700

     Flight Revenue

$89700

(For recording revenue for the month of March)

Date

Accounts & Explanation

Debit

Credit

March

Unearned charter revenue

$89700

     Flight Revenue

$89700

(For recording revenue for the month of March)

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