Question

Seaport Marina has 500 slips (boat docks) that rent for $1,000 per season. Payments must be made in full at the start of the boating season, April 1. Slips may be reserved for the next season if they are paid for by December 31. Under a new policy, if payment is made by December 31, a 5% discount is allowed. The boating season ends on 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 on the fees for a second season if the second season is also paid for before December 31 of the current year.
For the fiscal year ended December 31, 2014, all 500 slips were rented at full price. Two hundred slips were reserved and paid for in advance of the 2015 boating season, and 160 slips were reserved and paid for in advance of the 2016 boating season.
Instructions
(a) Explain how revenue would be recorded for the 2015 and 2016 sales in fiscal 2014 under the earnings approach.
(b) Prepare the appropriate journal entries for fiscal20 14.
(c) If Seaport Marina had not offered a discount of 25% for the 2016 boating season, it would have received the annual fee of $ 1,000 per slip on April 1, 2016. Calculate the real cost of the discount given by Seaport Marina. Express the cost as an annual percentage so that it can be compared fairly with alternative sources of financing.


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  • CreatedSeptember 18, 2015
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