Principles of Accounting
12th Edition
ISBN: 9781133626985
Author: Belverd E. Needles, Marian Powers, Susan V. Crosson
Publisher: Cengage Learning
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Chapter 2, Problem 6C
To determine
Determine the total revenue for CVS and S Airline Company from the corresponding income statement, and explain how the nature of business will affect the revenue recognition for prescription to fill the CVS against S Airline tickets. Determine when the cash is received and revenue earned for each company.
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The realization principle determines when a business should recognize revenue. Listed next are three common business situations involving revenue. After each situation, we give two alternatives as to the accounting period (or periods) in which the business might recognize this revenue. Select the appropriate alternative by applying the realization principle, and explain your reasoning.a. Airline ticket revenue: Most airlines sell tickets well before the scheduled date of the flight. (Period ticket sold; period of flight)
From the following list, identify which items are considered original sources:
prepaid insurance
bank statement
sales ticket
general journal
trial balance
balance sheet
telephone bill
invoice from supplier
company sales account
income statement
a. What do the accounting policies say in the annual report (footnotes) regarding the cost of revenue? What are the drivers to the cost of revenue and the trends?
b. Are there any trends in sales and marketing expenses or research and development? Are these amounts reasonable for the type of business?
c. Compare general and administrative expenses to similar companies. Are they reasonable?
d. What is the ratio of net interest income (expense) to income from operations? Is this a safe ratio for the company? Why or why not?
Chapter 2 Solutions
Principles of Accounting
Ch. 2 - A company incurs a cost for a part that is needed...Ch. 2 - Prob. 2DQCh. 2 - Prob. 3DQCh. 2 - Prob. 4DQCh. 2 - How are assets and expenses related, and why are...Ch. 2 - Prob. 6DQCh. 2 - Prob. 7DQCh. 2 - Prob. 8DQCh. 2 - Tell whether each of the following accounts is an...Ch. 2 - Prob. 2SE
Ch. 2 - Prob. 3SECh. 2 - Prob. 4SECh. 2 - Prob. 5SECh. 2 - Prob. 6SECh. 2 - Prob. 7SECh. 2 - Prepare a general journal form like the one in...Ch. 2 - Prepare three ledger account forms like the one in...Ch. 2 - Prob. 10SECh. 2 - Prob. 11SECh. 2 - Prob. 12SECh. 2 - Which of the following events would be recognized...Ch. 2 - You are given the following list of accounts with...Ch. 2 - The following ledger accounts are for Afocentric...Ch. 2 - Prob. 4EACh. 2 - The accounts that follow are applicable to Harolds...Ch. 2 - Prob. 6EACh. 2 - Prob. 7EACh. 2 - Prob. 8EACh. 2 - After recording the transactions in E6A, prepare a...Ch. 2 - The list that follows presents Shah Companys...Ch. 2 - Which of the following errors would cause a trial...Ch. 2 - Prob. 12EACh. 2 - Record the transactions in E6A in the general...Ch. 2 - Prob. 14EACh. 2 - Prob. 15EACh. 2 - Prob. 16EACh. 2 - Highland Design Company creates radio and...Ch. 2 - The following accounts are applicable to Georges...Ch. 2 - Jennifer Lopez opened a school for administrative...Ch. 2 - Sid Patel bid for and won a concession to rent...Ch. 2 - Nordtown Company is a marketing firm. The companys...Ch. 2 - Prob. 6APCh. 2 - The following accounts are applicable to Raymonds...Ch. 2 - Prob. 8APCh. 2 - David Roberts began an upholstery cleaning...Ch. 2 - Prob. 10APCh. 2 - Prob. 1CCh. 2 - Prob. 2CCh. 2 - Prob. 3CCh. 2 - Prob. 4CCh. 2 - Prob. 5CCh. 2 - Prob. 6CCh. 2 - Prob. 7C
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- From the following list, identify which items are considered original sources: A. prepaid insurance B. bank statement C. sales ticket D. general journal E. trial balance F. balance sheet G. telephone bill H. invoice from supplier I. company sales account J. income statementarrow_forwardWhich of the following items is not a specific account in a company's chart of accounts? Multiple Choice Sales Revenue. Income Tax Expense. Deferred Revenue. Net Income. *********arrow_forwarda. What is your company’s primary revenue, secondary revenue, and gains? b. What is your company’s primary expenses, secondary expenses, financial activity generated expenses, and losses? c. What is the revenue trend? Does the 10-K or 10-Q discuss primary revenues, as well as other revenue types? d. What do the accounting policies say in the annual report (footnotes) regarding the cost of revenue? What are the drivers to the cost of revenue and the trends?arrow_forward
- 1.The chart of accounts is a listing of the accounts presently having balances in the general ledger. True or false? 2.. Revenue is the amount of money your business brings in by selling it's products or services to clients. True or false?arrow_forwardWhat Would You Do? You are responsible for preparing all of the journal entries for Regional Financial Services. You have correctly prepared the following entry for financial services provided on December 15: Your boss has asked you to change the date from December 15 to January 15 so that the business’s profit, and thus taxes, would be lower. Are you allowed to do this? What is your response to your boss? How should you handle this situation?arrow_forward1. What is a Statement of Comprehensive Income? 2. Why are the accounts found under the SCI are called temporary accounts? 3. What are the two forms of SCI? Differentiate one from the other. 4. What is the difference between the SCI of a service entity from a merchandising entity? 5. What is the formula in computing Net Income (Loss) for Service Entities? 6. What is the formula in computing Net Sales? 7. What is the formula in computing Cost of Goods Sold?arrow_forward
- Under what circumstances would accounts receivable be posted as a credit balance : A. When the business provides additional credit to itscustomer B. When the business receives additional revenue C. when the business receives additional revenue D. When the business pays to its suppliersarrow_forwardWhich of the following is the entry to be recorded by alaw firm when it receives a payment from a new client thatwill be earned when services are provided in the future?a. Debit Accounts Receivable; credit Service Revenue.b. Debit Unearned Revenue; credit Service Revenue.c. Debit Cash; credit Unearned Revenue.d. Debit Unearned Revenue; credit Casharrow_forwardI have questions about the Income Statement. Aside from the obvious what is recorded in the Income Statement? Are Expenses covered? Are any other accounts covered? Please tell me all accounts that are included in the Income Statement and tell me if the Income Statement is a Debit or Credit Account and what accounts in the Income Statement Debits or Credits? Thanks!arrow_forward
- Accounting for E-commerce Transactions: In e-commerce accounting, what is the appropriate treatment for recognizing revenue from the sale of goods when using the accrual basis? A. Recognize revenue when cash is received from customers. B. Recognize revenue when goods are shipped or services are provided, and the customer is obligated to pay. C. Recognize revenue only when customers make the payment through credit cards. D. Recognize revenue at the end of the financial year for all completed transactionsarrow_forwardst page of the chapter. 2. Which of the following would result in the recognition of revenue? a. A manufacturer delivers a component to a supplier, b. A retailer sells a product to a consumer. C. A bank provides a service to a customer. d. All of the above would result in the recognition of revenue.arrow_forwardWhat is the primary purpose of the Statement of Affairs ? a. To determine how much is owed by the customers b. To determine the amount for the owners equity c. To determine how is left in the bank account d. To determine if there was a gain or loss on disposal The term Margin is determined by which of the following operations? a. Adding all the incomes b. Dividing gross profit by sales c. Subtracting expenses from sales d. Multiplying capital by a decimal The Sandy Bay is a trader in sand. On December 31, 2010 the closing inventory was completely destroyed by flood rains. The following information is available: (1) Inventory at December 1, 2010 at cost $31,400 (2) Purchases for December 2010 $55,600 (3) Sales for December 2010 $88,800 (4) Standard mark-up is 25% Based on this information, what was the value of the closing inventory? a. $15,960 b. $17,760 c. $20,400 d. $25,800…arrow_forward
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Revenue recognition explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=816Q6pOaGv4;License: Standard Youtube License