Concept explainers
Requirement -1
Rules of Debit and Credit:
Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
- Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.
The revenue recognition principle:
The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) of the company is completed.
Deferred revenues:
Collection of cash in advance to render service or to deliver goods in future is known as unearned revenues. These unearned revenues are considered as liabilities until they are earned. For the portion of rendered services or delivered goods, revenues would be recognized by way of passing an
To describe: The time of revenue recognition from the sale of it season passesfor SW Incorporation.
Requirement - 2
To prepare: The appropriate
3.
To describe: The items which are included in the
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Intermediate Accounting
- 31 PROBLEMS Problem 2-1 (IAA) Miracle Company manufacturers a product that is packaged and sold. A plate is offered to customers sending in three wrappers accompanied by a remittance of P10. of m Data with respect to the premium offer are summarized below. 2020 2021 3,600,000 390,000 5,000 4,200,000 580,000 9,000 Sales Purchase of premium, P50 per plate Number of plates distributed as premiums Estimated number of plates to be distributed in subsequent period Distribution cost P20 per plate 2,000 3,000 Required: Prepare journal entries that would be made in 2020 and 2021 to record sales, premium purchases and redemptions, and year-end adjustments.arrow_forwardExercise 9-5 (Algo) Calculate earned revenues LO 1 Big Blue University has a fiscal year that ends on June 30. The 2019 summer session of the university runs from June 7 through July 26. Total tuition paid by students for the summer session amounted to $112,000. Required: a. How much revenue should be reflected in the fiscal year ended June 30, 2019? X Answer is complete but not entirely correct. Amount of revenue 52,571 X b. Would your answer to part a be any different if the university had a tuition refund policy that no tuition would be refunded after the end of the third week of summer session classes? Yes O No Oarrow_forwardWork Assignment AEST Part 2 of 6 Ever Lawn, a manufacturer of lawn mowers, predicts that it will purchase 324,000 spark plugs next year. Ever Lawn estimates that 27,000 spark plugs will be required each month. A supplier quotes a price of $13 per spark plug. The supplier also offers a special discount option: If all 324,000 spark plugs are purchased at the start of the year, a discount of 2% off the $13 price will be given. Ever Lawn can invest its cash at 8% per year. It costs Ever Lawn $130 to place each purchase order. Required 1. What is the opportunity cost of interest forgone from purchasing all 324,000 units at the start of the year instead of in 12 monthly purchases of 27,000 units per order? 2. Would this opportunity cost be recorded in the accounting system? Why? 3. Should Ever Lawn purchase 324,000 units at the start of the year or 27,000 units each month? Show your calculations. Requirement 1. What is the opportunity cost of interest forgone from purchasing all 324,000…arrow_forward
- Exercise 9-7 (Algo) Calculate earned revenues LO 9-1 Big Blue University has a fiscal year that ends on June 30. The 2022 summer session of the university runs from June 7 through July 26. Total tuition paid by students for the summer session amounted to $131,000. Required: a. How much revenue should be reflected in the fiscal year ended June 30, 2022? Note: Do not round intermediate calculations. b. Would there be a change in the revenue reflected if the university had a tuition refund policy that no tuition would be refunded after the end of the third week of summer session classes? a. Amount of revenue b. Would there be a change in the revenue reflected? S No A 61,489arrow_forwardPROBLEM TWO Part A: Revenue Recognition= Loyola Company, a kitchen appliances manufacturer sells 10 washing machines to a dealer for $30,000 in one signed contract. Additionally, Loyola Company offered a $500 cash incentive (price reduction per machine purchased) to the dealer for all machines purchased within two weeks leading to the July 4 holiday. The sale includes three years of maintenance for each of the machines. The standalone selling price of the washing machines is $30,000 and the standalone selling price of the maintenance contract is $2,000. Loyola company purchased the machines at a combined total of $25,000. In answering the following questions, round each amount to the nearest whole dollar. Instructions 1. How many performance obligations are in this contract? 2. Allocate the transaction price to the performance obligations identified in #1 assuming the machines were sold on July 1" (within the offer time). Continued on next negaarrow_forwardEXERCISE 13 Pierce Corporation issues gift certificates in denominations of P 300, P 500 and P 1,000.These gift certificates are redeemable in merchandise and expire one year after the issue date. The company's gross profit is an average of 30%. Based on past experience, an average of ½ of 1% of total gift certificates sold will not be redeemed by reason of expiration. The company records revenue as certificates expire. During 2020, the company sold P 2,000,000 gift certificates through its licensed distributors.At the end of the year, total redeemed gift certificates had a sales value of P I,280,000. REQUIRED: Prepare all journal entries pertaining to the above information.Assume that Pierce uses periodic inventory system.arrow_forward
- Testbank Multiple Choice Question 93 Vaughn Manufacturing borrowed $413000 on April 1. The note requires interest at 12% and principal to be paid in one year. How much interest is recognized for the period from April 1 to December 31? $33040. $37170. O $0. $49560.arrow_forwardExercise 9-5 (Algo) Calculate earned revenues LO 1 Big Blue University has a fiscal year that ends on June 30. The 2019 summer session of the university runs from June 7 through July 26. Total tuition paid by students for the summer session amounted to $112,000.Required:a. How much revenue should be reflected in the fiscal year ended June 30, 2019? b. Would your answer to part a be any different if the university had a tuition refund policy that no tuition would be refunded after the end of the third week of summer session classes?multiple choice Yes noarrow_forward81 PROBLEMS Problem 3-1 (IAA) repair warranty The sale price for each set is P15,000. The average repair cost per set is P800. Research has shown that 20% of all sets sold are repaired in thế first year and 40% in the second year. 2020 2021 300 500 150,000 Number of sets sold 40,000 Total payments'for warranty repairs Required: 1. Prepare journal entries in connection with the warranty using the "expense as incurred" approach. 2. Prepare journał entries in connection with the warranty using the "accrual" approach. 3. Determiņe the estimated warranty liability on December 31, 2021 4. Analyze the estimated warranty liability account to ascertain whether actual warranty costs approximate the estimate. The sales and warrantý repairs are made evenly during the year. 5. Prepare journal entry to correct the estimated warranty liability on December 31, 2021. 82 Problem 3-2 (AICPA Adapted) In 2020, Dare Company bęgan sellingarrow_forward
- 11:/13 Problem 2-2U S) William Company operates a customer loyalty program. T entity grants loyalty points for goods purchased. The loyalty points can be used by the customers in exchane for goods of the entity. The pointa have no expiry date. During 2020, the entity issued 100,000 award credits and expects that 80% of these award credits shall be redeemed The total stand-alone selling price of the award credita granted is reliably measured at P2,000,000. In 2020, the entity sold goods to customers for a total consideration of P8,000,000 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 2021 30,000 15,000 80% 90% 1. What is the revenue from points for 2020? 1,600,000 b. a. 1.500,000 600,000 d. 480,000 2. What is the revenue from points for 2021? a. 240,000 b. 200,000 120,000 04.29arrow_forwardProblem 13-12 Pronghorn Music Emporium carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and sheet music. Pronghorn uses two sales promotion techniques—warranties and premiums—to attract customers.Musical instruments and sound equipment are sold with a 1-year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience, is 1% of sales.The premium is offered on the recorded and sheet music. Customers receive a coupon for each dollar spent on recorded music or sheet music. Customers may exchange 200 coupons and $10 for an MP3 player. Pronghorn pays $22 for each player and estimates that 60% of the coupons given to customers will be redeemed.Pronghorn’s total sales for 2020 were $6,830,000—$5,566,000 from musical instruments and sound reproduction equipment and $1,264,000 from recorded music and sheet music. Replacement parts and labor for warranty work totaled $91,000 during 2020 ($45,000 of the work is…arrow_forwardTopic: Premium Liability Problem 2-21 Arianne Company, a grocery retailer, operates a customer loyalty program. The entity grants program members loyalty points when they spend a specified amount on groceries. Program members can redeem the points for further groceries. The points have no expiry date. During 2020, the sales amount to P7,000,000 based on stand-alone selling price. During the year, the entity granted 10,000 points. But management expected that only 80% or 8,000 points will be redeemed. The stand-alone selling price of each loyalty point is P100. On December 31, 2020, 4,800 points have been redeemed In 2021, management revised its expectations and now expected that 90% or 9,000 points will be redeemed altogether. During 2021, the entity redeemed 2,400 points. Questions: What amount should be reported as sales revenue including the revenue earned from points for 2020? What is the revenue earned from loyalty points for 2021?arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning