Explore BrainMass

Revenue Recognition: Brooke Bennett Marina for Slip Rentals

1. Brooke Bennett Marina has 300 available slips that rent for $900 per season. Payments must be made in full at the start of the boating season, April 1, 2008. Slips for the next season may be reserved if paid for by December 31, 2008. Under a new policy, if payment is made by December 31, 2008, a 5% discount is allowed. The boating season ends October 31, and the marina has a December 31 year-end. To provide cash flow for major dock repairs, the marina operator is also offering a 25% discount to slip renters who pay for the 2009 season.

For the fiscal year ended December 31, 2007, all 300 slips were rented at full price. Two hundred slips were reserved and paid for for the 2008 boating season, and 60 slips were reserved and paid for for the 2009 boating season.


a. Prepare the appropriate journal entries for fiscal 2007.
b. Assume the marina operator is unsophisticated in business. Explain the managerial significance of the accounting above to this person.

Solution Preview

See the attachment to view the journal entries in better form.

1. Since "all 300 slips were rented at full price", we know that the 2007 revenue should be 300 x $900 = $270,000.
2. 200 slips were paid in 2007 for the 2008 season minus a 5% discount. (200 x $900) - 5% = $171,000.
3. 60 slips were paid in 2007 for the 2009 season minus a 25% discount. (60 x $900) - 25% = $40,500.


JE1 Unearned revenue and Cash $270,000
Revenue earned $270,000

To record total revenues for 2007. The debit side could be a combination of cash received in 2007 or 2006 (unearned portions at the end of 2006).

JE2 Cash $171,000
Unearned revenue - 2008 $180,000

Solution Summary

The solution prepares the journal entries together with explanations to show the computations. Following is a narrative portion to help explain the concepts to management.