EXERCISE 18-3 (10-15 minutes)

(a)   Cash (2004 slips) (300 X $900)..............................      270,000                 Dock Rent Revenue.........................................                           270,000         Cash (2005 slips) [200 X $900 X (1.00 – .05)]......      171,000                 Unearned Revenue (current)..........................                           171,000         Cash (2006 slips) [60 X $900 X (1.00 – .25)]........        40,500                 Unearned Revenue (non-current).................                             40,500 (b)   The marina operator should recognize that advance rentals generated $211,500 ($171,000 + $40,500) of cash in exchange for the marina’s pro­mise to deliver future services. In effect, this has reduced future cash flow by accelerating payments from boat owners. Also, the price of ren­tal services has effectively been reduced. The current cash bonanza does not reflect current earned income. The future costs of operation must be covered, in part, from thi