Question

Link Pictures Inc. sells (licenses) the rights to exhibit motion pictures to theaters. Under the sales contract, the theater promises to pay a license fee equal to the larger of a guaranteed minimum or a percentage of the box office receipts. In addition, the contract requires the guaranteed minimum to be paid in advance. Consider the following contracts entered by Link during 2011:
a. Contract A authorizes a group of theaters in Buffalo, New York, to exhibit a film called Garage for two weeks ending January 7, 2012. Box office statistics indicate that first-week attendance has already generated licensing fees well in excess of the guaranteed minimum.
b. Contract B authorizes a chain of theaters in Miami, Florida, to exhibit a film called Blue Denim for a period of two weeks ending January 20, 2012. In most first-run cities, the film has attracted large crowds, and the percentage of box office receipts has far exceeded the minimum.
c. Contract C authorizes a chain of theaters in San Francisco to exhibit a film called Toast Points for a period of two weeks ending on December 12, 2011.. The film is a ‘‘dog’’ and the theaters stopped showing it after the first few days. All prints of the film were returned by December 31, 2011.
The guaranteed minimum has been paid on all three contracts and recorded as unearned revenue. No other amounts have been received, and no revenue has been recorded for any of the contracts. Adjusting entries for 2011 are about to be made.
Required:
Describe the adjusting entry you would make at December 31, 2011, to record each contract.


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  • CreatedSeptember 22, 2015
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