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May 11, 2024
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Spencer Rodrigues
D252 Accounting Research
A.)
After reviewing the KTSB and Ramesses II agreement I have discovered the following accounting issues in their model.
Model E sales recognition method:
Characteristics of the agreement:
Ramesses 2 purchased the model E from KTSB and will pass on the title to them. The products unsold for
90 days may be return. There was a specified time when they will receive the Model E which are they were bought on July 16 and will be shipped on August 23. The problem arises to recognize revenue by how and when they will be recognizing the sales for the model E.
The accounting revenue issue:
The biggest issue is when the exact time the full transfer will happen to move over to Ramesses 2. The reason is this is so important is because for the 90 days return the deciding factor of POD or OT is very important.
Coupon and reimbursement:
Characteristics of the agreement:
In the deal there is a coupon for 100 dollars on the Model E and the coupon will expire in 90 days which will be redeemable at both companies. The main issue here is how they will recognize the revenue from the coupon and the possible reimbursement.
The accounting revenue issue:
This is essential on the recognition of revenue because if they need to decide the method for recognizing
the price of the product. There will be 2 potential recognizing revenue in this solution which they will have to decide which is deduct from the price or not. How will they recognize the reimbursement if they choose to return those products within the 90-day period.
Commission on gift cards:
Characteristics of the agreement:
The deal explains that the commission agreed to pay was 3 percent. The normal rate is 2.5 percent.
The accounting revenue issue:
The issues found in the commission is why it is 3 percent and if the company really provides that type of service. What type of difference will that affect the revenue with a higher commission rate.
Warranty claims:
Characteristics of the agreement:
KTSB is letting Ramesses 2 accept warranty claims for the computers for the first year when the product was bought. This will affect the revenue recognition because of the extra costs of shipping the product to
KTSB and other similar costs.
The accounting revenue issue:
The issue with the warranty claims is that there are additional costs per warranty claims like shipping. This accounting issue is a timing issue and of much of liabilities for these possible obligations that will come up.
B.)
Summary:
We agree with Ramesses 2 to sell the product 300 Model E, which will help with major opportunities. The main points of the deal are as followed, the transfer of the title and the right to return the product in the 90-day period as agreed. The coupon that will give the product 100 dollars of the product which will be allowed to be redeemed in both Ramesses 2 and KTSB. The last item is the 3 percent commission to Ramesses 2 from the gift cards which in fact is higher than the industry normalized standard. Ramesses 2 will be accepting warranty claims within a year of purchased from customers which will add additional costs that needs to be put into consideration.
Model E sales recognition method:
Accounting issue:
The issue with Model E sales recognition is that the exact time that the Model E will be transferred to Ramesses 2. A big reason why this is an issue is how they would recognize revenue when they will start recognizing revenue and this is confusing because if they don’t figure this out, they may over or under state revenue because recognizing revenue in the wrong point of time. This is essential too because of the 90 days return policy as well.
Guidance:
(FASB 606-10-25-1) “The parties to the contract have approved the contract (in writing, orally, or in accordance with other customary business practices) and are committed to perform their respective obligations.”
Analyze research:
According to this section, the legal title must be specified because of the change of cash flow and accordance to this policy and if this is the case they need to factor in the contract with the customer and decide when they will be taking over the rights of the product, so they recognize revenue correctly. Recommendation:
The recommendation for this accounting issue is follow the instruction of point of delivery and when they reach those criteria, they will recognize revenue and must stay consistent with this form because the accounting must follow the criteria while recognizing revenue.
Coupon and reimbursement:
Accounting issue:
The issue with the coupon is that they will take 100 dollars off the price so they will not overstate their revenue. This is important because if they ignore the 90-day coupon they can realize that will cause an issue with overstating revenue. How they will recognize revenue when they return the item how will they recognize the reimbursement?
Guidance:
(FASB 606-10-25-13) “The effect that the contract modification has on the transaction price, and on the entity's measure of progress toward complete satisfaction of the performance obligation, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue)”
Analyze research:
In this section this describes that a modification to the contract on the transaction price should not be recognized on revenue and should reduce revenue. This is the case because if they do recognize this as revenue then you will be overstating your revenue.
Recommendation:
The recommendation is not to recognize revenue when there is a discount for 100 dollars so that the revenue is being recognized correctly. This is important because if you recognize revenue with the 100 dollars off then this will affect the books by overstating revenue that was not really generated.
Commission on gift cards:
Accounting issue:
The accounting issue is having a higher commission rate of 3 percent versus the 2.5 percent what affect will it have on the revenue account and how much of a difference will this make on the company?
Guidance:
(FASB 606-10-55-38) “When (or as) an entity that is an agent satisfies a performance obligation, the entity recognizes revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified goods or services to be provided by the other party. An entity's fee or commission might be the net amount of consideration that the entity retains after paying the other party the consideration received in exchange for the goods or services to be provided by that party.”
Analyze research:
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Related Questions
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Problem 2
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date.
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stand-alone selling price.
« Th i
The award credits redeemed and the total award credits expected to be redeerned each year:
Redeemed
Expected to be Redeemed
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15,000
7,950
2,550
15.000
B0%
2022
85%
85%
90%
2023
2024
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credits actually redeemed are
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Presented below are two independent revenue arrangements for Colbert Company.
Instructions
Respond to the requirements related to each revenue arrangement.
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b. Colbert sells 20 nonrefundable $100 gift cards for 3D printer paper on March 1, 2020. The paper has a standalone selling price of $100 (cost $80). The gift cards expiration date is June 30, 2020. Colbert estimates that customers will not redeem 10% of these gift cards. The pattern of redemption is as follows.…
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Erika Company operates a customer loyalty program. The entity grants loyalty points for goods purchased.
The loyalty points can be used by the customers in exchange for goods of the entity. The points have no expiry date.
During 2020, the entity issued 50,000 award credits and expects that 80% of these award credits shall be redeemed.
The fair value of the award credits granted is reliably measured at P2,000,000.
In 2020, the entity sold goods to customers for a total consideration of P9,000,000 based on stand-alone selling price.
The award credits redeemed and the total award credits expected to be redeemed each year are as follows:
Redeemed Expected to be
Redeemed
2020 15,000 80%
2021 7,950 85%
2022 2,550 85%
2023 15,000 90%
Required:
Prepare journal entries from 2020 to 2023.
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10. Serene Company purchases fountains for its inventory from Kirkland Inc. The following
transactions take place during the current year.
A. On July 3, the company purchases thirty fountains for $3114 per fountain, on credit.
Terms of the purchase are 2/10, n/30, invoice dated July 3.
B. On August 3, Serene does not pay the amount due and renegotiates with Kirkland.
Kirkland agrees to convert the debt owed into a short-term note, with an 8% annual
interest rate, payable in two months from August 3.
C. On October 3, Serene Company pays its account in full.
Record the journal entries to recognize the initial purchase, the conversion, and the payment.
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On January 1, 2018, an entity enters into a contract to transfer Products C and D to a customer in exchange for
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C is conditional on the delivery of Product D. The stand-alone selling prices of Product C and D are P480 and
P720, respectively. Product C is delivered on January 3, 2018 while Product D is delivered on March 31, 2018.
The customer pays on April 8, 2018.
How much is the balance of contract liability on January 3, 2018?
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- Obra Ltd is your client. It has adopted IFRS as the financial reporting framework and has asked you to assist in dealing with the following issues. On I January 2014 Obra Ltd acquired a machine under the following terms. Manufacturer's base price GHS1,050,000 Trade discount (applying to base price only) 20% Early settlement discount taken (on the payable amount of the base cost only) 5% Freight charges GHS 30,000 Electrical installation cost GHS 28,000 Staff training in use of machine GHS 40,000 Pre-production testing GHS 22,000 Purchase of a three-year maintenance contract GHS60,000 Estimated residual value GHS 20,000 Estimated life in machine hours 6,000 hours Hours used -year ended 31 December 2014 - 1,200 hours - year ended 31 December 2015 1,800 hours - year ended 31 December 2016 (see below) 850 hours On I January 2016 Obra Ltd decided to upgrade the machine by adding new…arrow_forward3. Erika Company operates a customer loyalty program. The entity grants loyalty points for goods purchased. The loyalty points can be used by the customers in exchange for goods of the entity. The points have no expiry date. During 2020, the entity issued 50,000 award credits and expects that 80% of these award credits shall be redeemed. The stand-alone selling price of the award credits granted is reliably measured at P1,000,000. In 2020, the entity sold goods to customers for a total consideration of P7,000,000 based on stand-alone selling price. The award credits redeemed and the total award credits expected to be redeemed each year are as follows: Redeemed Expected to be Redeemed 2020 15,000 80% 2021 7,950 85% 2022 2,550 85% 2023 15,000 90% Required: Prepare journal entries from 2020 to 2023.arrow_forwardOn May 1, 2025, Sunland Company enters into a contract to transfer a product to Charlie Company on September 30, 2025. It is agreed that Charlie will pay the full price of $26,420 in advance on June 15, 2025. Charlie pays on June 15, 2025, and Sunland delivers the product on September 30, 2025, Prepare the journal entries required for Sunland in 2025. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry for the account titles and enter 0 for the amounts. List all debit entries before credit entries. Record journal entries in the order presented in the problem) Date May 1,2025 June 15, 2025 Sep 30, 2025 Account Titles and Explanation No Entry No Entry Cath Debit 0 26420 26420 Credit 26420 26420arrow_forward
- Company Zumba delivers goods to Customer Yuppie on 1 January 2018. The agreement between the two parties states that Customer Yuppie pays for the goods in two instalments, the first (£10,000) being paid on delivery and the second (£5,000) being paid in three years from the delivery date. The goods are transferred to the control of Customer Yuppie at the date of delivery. REQUIRED i) Present the journal entries for Zumba at the delivery date. (Assume that Company Zumba determines that the discount rate for imputing interest to the transaction is 10%.) ii) Present the journal entries for Zumba on 31 December 2018. iii) Present the journal entries for Zumba at the delivery date if the control of the asset has not been transferred at the date of delivery. Assume 10% as the discount rate, if necessary.arrow_forwardProblem 2 Erika Company operates lovaity program. The entity grants loyalty points for goods purchased. The loyalty points van be used by costumer in exchange for goods of the entity. The points have no expiry date. During 2021, the entity issued 50,000 award credits and expects that 80% of these award credits shall be redeerned. The Total Stand-alone selling price of the award credits granted is reliably measured at P1, 00,000 in 2021, the entity sold goods to costumers for a total consideration of P7, 000,000 based on stand-alone selling price. « Th i The award credits redeemed and the total award credits expected to be redeerned each year: Redeemed Expected to be Redeemed 2021 15,000 7,950 2,550 15.000 B0% 2022 85% 85% 90% 2023 2024 1. What amount should be reported as revenue points for 20217 A. 328, 125 B. 875,000 C. 700,000 D. 175,000 2. What amount should be reported as revenue frorn points for 2022? A. 472, 500 В. 4А, 375 C. 415, 625 D. 236, 250 3. What amount shauld be…arrow_forwardDescribe the revenue recognition policy that the company should follow: Comfort Furniture sells household furniture. Customers can pay for the furniture at the time of delivery or they can wait one year to make payment. In the latter case, the customer must pay for the retail price of the furniture plus an additional 16 percent. If the customer decides to pay after one year, should Comfort Furniture report the additional 16 percent as part of the revenue from selling the furniture or should it be reported separately? Assume that the ability to collect the receivable is not an issue.arrow_forward
- On May 1, 2025, Sandhill Company enters into a contract to transfer a product to Anthony Company on September 30, 2025. It is agreed that Anthony will pay the full price of $24,560 in advance on June 15, 2025. Anthony pays on June 15, 2025, and Sandhill delivers the product on September 30, 2025. Prepare the journal entries required for Sandhill in 2025. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter o for the amounts. List all debit entries before credit entries. Record journal entries in the order presented in the problem.) Date 11 Account Titles and Explanation Debit Creditarrow_forward5. MASAKIT SA BUNGO CORPORATION operates a customer loyalty program. The entity grants loyalty points for goods purchased. The loyalty points can be used by the customers in exchange for goods of the entity. The points have no expiry date. During 2019, the entity issued 50,000 award credits. The fair value of the award credits is reliably measured at P2,000,000. In 2019, the entity sold goods to customers for a total consideration of P9,000,000 including the fair value of the award credits. The total award credits expected to be redeemed are 80% in 2019 and 85% in 2020. The award credits actually redeemed are 15,000 in 2019 and 7,950 in 2020. What is the revenue earned from points in 202O? * a. P600,000 b. P750,000 c. P330,000 d. P318,000arrow_forwardOn October 10, 2017, Executor Co. entered into a contractwith Belisle Inc. to transfer Executor’s specialty products(sales value of $10,000, cost of $6,500) on December 15,2017. Belisle agrees to make a payment of $5,000 upondelivery and signs a promissory note to pay the remainingbalance on January 15, 2018. What entries does Executormake in 2017 on this contract? Ignore time value ofmoney considerations.arrow_forward
- 1. Assume the note indicates that Seneca is to pay Arctic the $43,500 due on the note on December 31, 2021. Prepare the journal entry for Arctic to record the sale on January 1, 2021. 2. Assume the same facts as in requirement 1, and prepare the journal entry for Arctic to record collection of the payment on December 31, 2021. 3. Assume instead that Seneca is to pay Arctic the $43,500 due on the note on December 31, 2022. Prepare the journal entry for Arctic to record the sale on January 1, 2021. 4. Assume instead that Arctic does not view the time value of money component of this arrangement to be significant, and that the note indicates that Seneca is to pay Arctic the $43,500 due on the note on December 31, 2021. Prepare the journal entry for Arctic to record the sale on January 1, 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to the nearest whole dollar amount.) X Answer is complete…arrow_forwardPlease answert it in good accounting form. Thankyou Problem 5SHAWARMA Inc. sells franchises to independent operators. The contractwith the franchise includes the following provisions: 1. The franchise is charged an initial franchise fee of P120,000. Of this amount, P20,000 is payable when the agreement is signed and a P20,000, zero-interest bearing note, payable at the end of 5 subsequent years.2. All of the initial franchise fee collected by the company is to be refunded and the remaining obligation cancelled if, for any reason, the franchise becomes unprofitable.3. In return, for the initial franchise fee, the franchisor agrees to (a) assist the franchisee in selecting the location for the business, (b) negotiate the lease of the land, (c) obtain financing and assist with building design, (d) supervise construction, establish accounting and tax records, and (f) provide expert advice over a 5-year period relating to such matters as employee and management training, quality, control…arrow_forwardCucu Company sells gift certificates redeemable only when merchandise is purchase. The certificates have anexpiration date two years after issuance date. Upon redemption or expiration, Cucu Company recognizes theunearned revenue as realized. Data for 2020 are as follows:Unearned revenue, 1/1/2020 P800,000Gift certificates sold 4,000,000Gift certificates redeemed 3,200,000Expired gift certificates 400,000Cost of goods sold 60%At December 31, 2020, what amount of current liability should Cucu report in relation to gift certificates?a. P1,200,000 b. P800,000 c. P400,000 d. d. P0arrow_forward
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