Muscles Gym Corp. offers a variety of fitness packages to its members: 

■ A pay-as-you-go membership for the use of the fitness facilities costing $40 per month 

■ A one-year, non-cancellable membership costing $420 per year 

■ A two-year, non-cancellable membership costing $720 ($360 per year) 

■ A personal trainer package (PTP) of 10 coupons for one-hour sessions costing $750 

The chart that follows summarizes Muscles’ membership numbers and relevant financial information at December 31, 2021:

Other information: 

■ All fees are payable in advance. One- and two-year memberships are effective from the first of the month following sale. 

■ 15 one-year memberships were sold every month in 2021. 

■ Five two-year memberships were sold every month in 2020 and 2021. 

■ Historically, all personal trainer session coupons are redeemed within one year of purchase. 

■ To simplify their accounting somewhat, and as the amounts are not material, Muscles recognizes the pay-as-you-go membership fees as revenue in the month charged even if they are purchased during the month. 

Transactions during January 2022: 

■ 34 pay-as-you-go members cancelled their memberships before paying for January. 

■ Muscles attracted 45 new pay-as-you-go members. 

■ Muscles sold 20 new one-year memberships. 

■ Muscles sold 10 new two-year memberships. 

■ 112 coupons for personal training sessions were redeemed. 

■ 10 new personal trainer packages were sold. 

Required:

a. Prepare journal entries to recognize the receipt of cash and recognize revenue in January 2022. 

b. What is the total deferred revenue that Muscles will report as a liability as at January 31? How much of this will be reported as a current liability?

Transcribed Image Text:

Pay as you go One year Two year Unused personal training sessions # of Customers 220 180 120 352 Liability $0 40,950 45,000 26,400 $112,350 Current Liability $ 0 40,950 33,300 26,400 $100,650 Non-Current Liability $ 0 0 11,700 0 $11,700