For the first quarter of 2017, prepare any needed correcting or adjusting journa

Question

For the first quarter of 2017, prepare any needed correcting or adjusting journal entries related to the following information. For corrections, first prepare an entry reversing the original incorrect entry, then prepare the correct entry. Show the calculation of any amounts not included in the problem. Round intermediate calculations to 4 significant digits (e.g., 63.27%). If no journal entry is needed, write “No Entry Needed” and explain briefly why it is not needed.

In addition to its normal operations, during the first quarter of 2017, TECHNOGYM launched a new service through its website called MagnaTrain. This web site offers online fitness training through contracted independent trainers. Each trainer sets her own price for a training session. TECHNOGYM connects interested individuals with the trainers but does not directly provide any of the training. For its services and per the contract, TECHNOGYM is entitled to 15% of the total per session fee.   TECHNOGYM has recorded the entire $6,000,000 fee collected in cash from the sessions as revenue and recognized its cost associated with MagnaTrain as 85% of the collected fee.

1. MagnaTrain revenue - TECHNOGYM recorded the entire $6,000,000 fee collected in cash from the sessions as revenue and recognized its cost associated with MagnaTrain as 85% of the collected fee. For its services and per the contract, TECHNOGYM is entitled to 15% of the total per session fee.

Explanation / Answer

In the given case, Technogym is entitled to only 15% of the total per session fee. Therefore, it should not record the entire fee collected as revenue. It should record only 15% of the fee collected as revenue.

Prepare a correcting entry for Technogym as follows:

When Technogym makes the payment to MagnaTrain the following journal entry will be prepared by it:

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