Intermediate Accounting: Reporting and Analysis
2nd Edition
ISBN: 9781285453828
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 2, Problem 11C
To determine
Indicate when to recognize the revenues, the method used to identify the revenue and justify the answer.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
The following are brief descriptions of two companies in different lines of business.
1. Company A is a retailer. It makes sales on a daily basis for cash and on credit cards.
2. Company B is a health spa. It has recently signed contracts with numerous individuals to use its facilities over a two-year period. The contract price was collected in advance.
Describe when revenue should be recognized by each company. If revenue should not be recognized at the time of sale, indicate what method should be used to recognize the revenue. Justify your decision.
The following are three independent situations.
1. Sandhill Rewards Inc. provides rewards services to licensees. Sandhill records service revenue related to rewards (granted as reward vouchers, which can be redeemed at a variety of retailers) and recognizes the cost of redemptions in the year vouchers are
sold to licensees. Sandhill's past experience indicates that only 80% of the vouchers sold to licensees will be redeemed. Sandhill's liability for stamp redemptions was $12,693,900 at December 31, 2024. Additional information for 2025 is as follows.
Service revenue from vouchers sold to licensees
Cost of redemptions (vouchers sold prior to 1/1/25)
$8,614,200
If all the vouchers sold in 2025 were presented for redemption in 2026, the redemption cost would be $5,173,300. What amount should Sandhill report as a liability for voucher redemptions at December 31, 2025?
Liability for stamp redemptions at December 31, 2025 $
Consumer expiration date
Total face amount of coupons issued
Total…
Before you begin this assignment, review the Tying It All Together feature in the chapter.
Part of Fry’s Electronics, Inc.'s experience involves providing technical support to its customers. This includes in-home installations of electronics and also computer support at their retail store locations.
Requirements
Suppose Fry’s Electronics, Inc. provides $10,500 of computer support at the Dallas-Fort Worth store during the month of November. How would Fry's Electronics record this transaction? Assume all customers paid in cash. What financial statement(s) would this transaction affect?
Assume Fry’s Electronics, Inc.’s Modesto, California, location received $24,000 for an annual contract to provide computer support to the local city government. How would Fry’s Electronics record this transaction? What financial statement(s) would this transaction affect?
What is the difference in how revenue is recorded in requirements 1 and 2? Clearly state when revenue is recorded in each requirement.
Chapter 2 Solutions
Intermediate Accounting: Reporting and Analysis
Ch. 2 - Prob. 1GICh. 2 - Prob. 2GICh. 2 - How do accounting concepts, principles, standards,...Ch. 2 - Prob. 4GICh. 2 - Prob. 5GICh. 2 - Prob. 6GICh. 2 - What is the Objective: Useful Information about...Ch. 2 - Prob. 8GICh. 2 - Prob. 9GICh. 2 - Define (a) return on investment, (b) risk, (c)...
Ch. 2 - Prob. 11GICh. 2 - Prob. 12GICh. 2 - Prob. 13GICh. 2 - Prob. 14GICh. 2 - Prob. 15GICh. 2 - Prob. 16GICh. 2 - What is the cost constraint, and how does it...Ch. 2 - Prob. 18GICh. 2 - Prob. 19GICh. 2 - Prob. 20GICh. 2 - Prob. 21GICh. 2 - Prob. 22GICh. 2 - Prob. 23GICh. 2 - Describe accrual accounting. What are the...Ch. 2 - What drives the timing of revenue recognition?...Ch. 2 - Prob. 26GICh. 2 - Prob. 27GICh. 2 - Prob. 28GICh. 2 - Prob. 29GICh. 2 - The information provided by financial reporting...Ch. 2 - Which of the following is considered a constraint...Ch. 2 - According to Statement of Financial Accounting...Ch. 2 - Prob. 4MCCh. 2 - Prob. 5MCCh. 2 - Prob. 6MCCh. 2 - Accruing net losses on obsolete inventory is an...Ch. 2 - Prob. 8MCCh. 2 - An accrued expense is an expense: a. incurred but...Ch. 2 - Prob. 10MCCh. 2 - Prob. 1ECh. 2 - Prob. 2ECh. 2 - Prob. 1CCh. 2 - Prob. 2CCh. 2 - Prob. 3CCh. 2 - Prob. 4CCh. 2 - An accountant must be familiar with the concepts...Ch. 2 - Prob. 6CCh. 2 - Prob. 7CCh. 2 - Prob. 8CCh. 2 - Prob. 9CCh. 2 - Accruals and Deferrals Generally accepted...Ch. 2 - Prob. 11CCh. 2 - Prob. 12CCh. 2 - You have been hired as an accounting consultant by...Ch. 2 - Prob. 14C
Knowledge Booster
Similar questions
- Consider each of the following scenarios: a. A seller orally agrees with one of its best customers to deliver goods in exchange for 10,000. While the sellers practice is to obtain a written sales agreement, the seller delivered these goods to the customer without a written agreement due to the customers urgent need. b. A seller agrees to provide accounting services to a customer for the next year in exchange for 40,000. While the two parties are negotiating the terms of the agreement and the specific services to be performed, the seller begins to perform some services as a gesture of good faith. c. A seller has a written agreement to deliver goods to a customer for 50 per unit. The price will drop to 45 per unit if the customer purchases more than 2,000 units per month. d. A seller had a written agreement and provided custodial services to a customer for 2,000 per month in a previous year. The contract expired on December 31, 2019. During negotiations for a new contract in January 2020, custodial services were provided at the previous monthly rate and paid for by the buyer. The seller and the customer agree to a new contract on February 1, 2020. The seller is concerned whether a contract existed in January 2020 and whether revenue can be recognized. Required: 1. Determine if a contract exists for each of the scenarios. 2. If it is determined that a contract exists but the seller believes it is probable that it will not collect the expected consideration, how does this affect the sellers ability to recognize revenue?arrow_forwardHarbor Island Investments (HII) is a discount brokerage firm offering clients investment advice, trading services, and a variety of mutual funds for investment. HII has collected the following information for November: Employee compensation Employee training programs Fees paid to execute trades Lease and facility costs Marketing Revenues (Advisory fees) Revenues (Brokerage commissions) Sales commissions to brokers Supervisors' salaries Required: Prepare an income statement for November for HII. Sales revenue Total revenues Cost of services sold Total costs of services $884,000 471,500 2,204,000 196,500 103,000 HARBOR ISLAND INVESTMENTS Income Statement For the Month Ending November 30 Marketing and administrative costs 1,654,000 3,304,000 279,000 334,000arrow_forwardAn accountant recommends a local computer company to a client that is trying to upgrade its computerized sales records. The client purchases $25,000 worth of equipment and sends a check to the accountant for 5 percent of the total sales. This is an example of aa. Commission.b. Contingent fee.c. Referral fee.d. Nonaudit fee.arrow_forward
- A cleaning company enters into a contract to provide daily cleaning service to OUHK for one year. Under HKFRS 15 Revenue from Contracts with Customers, discuss whether the cleaning company should recognize the revenue from the contract at a point in time. (b) Yellow Ltd. sells 2,000 pairs of running shoes to a retailer at $300 per pair. Yellow Ltd. provides an incentive scheme to the retailer by paying the retailer the difference between $300 and the lowest price that it will offer during the next 12 months. Yellow Ltd. estimates the selling price based on its past experience: Price Probability $300 65% $250 25% $200 10% Using the expected value method under HKFRS 15 Revenue from Contracts with Customers, determine the estimated transaction price for a pair of running shoes in this contract. Show your workings. (c) On 1 January 2014, Blue Ltd. received a government grant of $10 million to finance the acquisition of a machine for $25 million on that day. The machine was…arrow_forwardSelane Eatery operates a catering service specializing in business luncheons for large corporations. Selane requires customers to place their orders 2 weeks in advance of the scheduled events. Selane bills its customers on the tenth day of the month following the date of service and requires that payment be made within 30 days of the billing date. Conceptually, whenshould Selane recognize revenue related to its catering service?arrow_forwardConsider the following situations and determine (1) which type of liability should be recognized (specific account), and (2) how much should be recognized in the current period (year). A business sets up a line of credit with a supplier. The company purchases $10,000 worth of equipment on credit. Terms of purchase are 5/10, n/30. A customer purchases a watering hose for $25. The sales tax rate is 5%. Customers pay in advance for season tickets to a soccer game. There are fourteen customers, each paying $250 per season ticket. Each customer purchased two season tickets. A company issues 2,000 shares of its common stock with a price per share of $15.arrow_forward
- CompanyYhas signed a contract of CAD 1,000 with an independent translator on May 25. The invoice from the translator was received on July 15 for a total of CAD 1,000 . The translation service occurred from June 5 until June 25, and the payment was made on August 2. When should we recognize the expense? Select the single best answer: A. on May 25 B. on July 15 C. on August 2 D. on June 25 E. on September 15arrow_forwardeBay sells used products collected from different suppliers. Assume a customer purchases a used bicycle through eBay for $300. eBay agrees to pay the supplier $200 for the bicycle. The bicycle will be shipped to the customer by the original bicycle owner. Assume eBay takes control of the bicycle before the sale and pays $200 to the supplier. How much revenue would eBay recognize at the time of the sale to the customer? Why?arrow_forward1. Identifying alternative accounting treatments: A new restaurant is opening in one month, and the manager will be holding a one-week intensive training session for new employees. Describe two possible accounting methods for accounting for the costs of training the employees. Codification research is not required for this exercise; your goal on this exercise is just to brainstorm. 2. Identify at least one researchable question for the following issue:A vendor ships goods to a customer on credit but does not have previous credit experience with this customer. 3. Identify at least one researchable question for the following issue:A cable network has just entered into an agreement granting it the right to show reruns of a hit TV series. In exchange for this right, the network must pay the TV show’s creators a fee each time the show airs. 4. The six decision traps and biases are not an all-inclusive list. Perform an Internet search for one other bias that you believe could be applicable…arrow_forward
- Assume that AntonTech starts selling TechStop franchises. TrueTech charges. Franchisees an initial fee in exchange for (a) the exclusive right to operate the only TechStop in a particular area for a five-year period, (b) the equipment necessary to distribute and repair AntonTech products, and (c) training services to be provided over a two-year period. Similar equipment and training can be purchased elsewhere. 4. AntonTech should recognize revenue for the training? a. No transaction b. No revenue c. Point in Time d. Over Time 5. What if AntonTech also charges franchisees an additional fee for ongoing services provided by the company, the additional fee be recognize as revenue? a. No transaction b. No revenue c. Point in Time d. Over Timearrow_forwardWestover Travel offers travel packages using both air and ocean travel. Westover offers two packages, Tourist and Premier, that differ in the accommodations, class of travel, and so on. Westover has a call center, which handles customer queries and complaints. The call center tracks the number of calls and the number of call-minutes for customers by the package they have purchased. Expected call center data for next month follow. Call center volume: Number of calls Number of call minutes Call center costs: Call-related Call minute-related Total call center costs Tourist 29,000 126,000 Required: Total $ 222,950 106,920 $ 329,870 The call center at Westover uses a two-stage cost allocation system: It uses the number of calls to allocate call-related costs and the number of call minutes to allocate call minute-related costs. Premier 16,500 198,000 a. Call related-overhead rate b. Call minute-related overhead rate c. Call center costs allocated to Tourist d. Call center costs allocated to…arrow_forwardPart of the Fry’s Electronics, Inc. ’s experience involves providing technical support to its customers. This includes in-home installations of electronics and also computer support at their retail store locations. Requirements Suppose Fry’s Electronics, Inc. provides $10,500 of computer support at the Dallas-Fort Worth store during the month of November. How would Fry's Electronics record this transaction? Assume all customers paid in cash. What financial statement(s) would this transaction affect? Assume Fry’s Electronics, Inc.’s Modesto, California, location received $24,000 for an annual contract to provide computer support to the local city government. How would Fry’s Electronics record this transaction? What financial statement(s) would this transaction affect? What is the difference in how revenue is recorded in requirements 1 and 2? Clearly state when revenue is recorded in each requirement.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning