1) Jones Corporation enters into a contract with Warner Video to add their progr

Question

1) Jones Corporation enters into a contract with Warner Video to add their programs to Jones' network. Warner will pay Jones an upfront fixed fee of $250,000 for 12 months of access, and will also pay a $110,000 bonus if Jones' users access Warner Video for at least 10,000 hours during the 12-month period. Jones estimates that it has a 60% chance ofearning the $110,000 bonus. Refer to Jones Corporation. Upon collection of the upfront fee, Jones would recognize a/an A) unearned revenue of $360,000 B) prepaid revenue of $250,000 C) prepaid revenue of $360,000 D) unearned revenue of $250,000

Explanation / Answer

D) unearned revenue of $250,000

We need to consider upfront fee only. There is no certainty regarding bonus. Any revenue received on advance should be considered as unearned revenue. Once the revenue is accrued, it should transferred to revenue by debit to unearned revenue.

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