Walt Disney is a well-recognized brand in the entertainment industry with produc

Question

Walt Disney is a well-recognized brand in the entertainment industry with products ranging from broadcast media to parks and resorts. The following note is from a recent annual report:

Revenue Recognition

For non-expiring, multi-day tickets to our theme parks, we recognize revenue over a three-year period based on estimated usage patterns which are derived from historical usage patterns.

Assume that in the current year, Disney collected $90 million in multiday tickets that will be used in the future. Also in the current year, Disney estimates that $5 million worth of multiday tickets that have been sold in the past will not be used (e.g., they have been lost by customers). Provide the journal entries required to recognize (a) the receipt of the $90 million in cash and (b) the $5 million that Disney estimates will not be used.

a) record the receipt of the $90 million in cash.

b) Record the entry for $5 million that Disney estimates will not be used.

Explanation / Answer

Dear Student,

As per the principle on Revenue Recognition , revenue received in advance should be recognised only when it caters its goods or services. As given in the situation above Walt Disney recognize revenue over a three-year period based on historical estimates;

So journal entries required to recognize a) the receipt of the $90 million in cash is as follows:

Note: Assumed that entries would be posted at current year end;

Regards,

Date Particulars LF Amount (in $) Amount (in $) Bank A/c Dr 90,000,000 Revenue from operations 30,000,000 Unearned Revenue 60,000,000 (Recognition of revenue from sale of multi-day tickets to theme parks) Unearned Revenue Dr 5,000,000 To Revenue from Opeartions 5,000,000 ($ 5 MM worth of tickets estimated to be not used by customers and hence is directly recognised as income of the year)

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