Revenue Recognition

C

Char-Lee

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How should the proceeds received from the advanced sale of tickets to a sporting event be treated by the seller, assuming the tickets are nonrefundable?
a) Unearned revenue is recognized to the extend that costs have been incurred.
b) Revenue is recognized to the extent that costs have been incurred.
c) Revenue is deferred until the sporting event is held.
d) Revenue is recognized as the tickets are sold.
give it a shot
*** does it matter if the seller is a third party or the event sponsor?
 
C
because seller has an obligation to provide product (sporting even in this case) to the buyers
it shouldn’t matter if the seller is 3rd party as obligation to hold the event still exists
am i correct char-lee ??
 
yes you got it right Thunder… i picked (d) thinking a seller like Ticketmaster has no obligation to hold an event and is just a market maker… therefore revenue is recognized… i will remember this going forward, jsut doesn’t seem intuitive to me.
 
Char-Lee
The third party-seller vs event sponsor issue is really about two different types of revenues because the purchase price includes two revenue streams; a service fee to Ticketmaster who completes its obligation with the processing and delivery of the tickets, and the sponsor who completes his obligation when the event occurs..
If the question was about Ticketmaster’s right to recognize revenue it would be D. Conceptually I think you were sorta on the right track about the revenue rec principal, but the key is that in asking about “proceeds received”, they meant the underlying ticket face value, not the incidental fees charged. You got a bit off track , but I wouldn’t worry about it. Just make sure that you think through who the parties are, what the timing is, etc.
 
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