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Select the correct answer: In accordance with the revenue recognition principle, sales revenues are recorded when A) the accountant determines which period’s income statement “needs” more revenue. B) the performance obligation is satisfied, which typicall
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Access the FASB’s Accounting Standards Codification at their website Required: Determine the specific citation for accounting for each of the following items. List the citation and the FASB guidance
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Explain the importance of the matching principle for revenue and expense recognition, identify the requirements for revenue recognition to occur, identify and describe the appropriate revenue recognition, given the status of completion of the earning proc
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Rick Marsh, a lawyer, accepts a legal engagement in March, performs the work in April, and is paid in May. If Marsh’s law firm prepares monthly financial statements, when should it recognize revenue from this engagement? Why?
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At what point should revenue be recognized in each of the following independent cases? \ Case A. For Christmas presents, a McDonald’s restaurant sells coupon books for $10. Each of the $1 coupons may be used in the restaurant any time during the followin
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I. ABC Lawncare performed lawn maintenance services for Drake Inc. on June 1st, and received payment of $500 for those services. II. On June 1st, Melly Corp. received payment for 100 pounds of raw material to be delivered to Drake Inc. in 6 months III.
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Camden Corporations agreed to build a warehouse for a client at an agreed contract price of $ 900,000. Expected (and actual) costs for the warehouse follow: 2016, $202,500; 2017, $337,500; and 2018, $135,000. The company completed the warehouse in 2015.
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Brady Construction Company contracted to build an apartment complex for a price of $6,600,000. Construction began in 2018 and was completed in 2020. The following is a series of independent situations
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When is revenue recognized in the following situations? (a) Revenue from selling products. (b) Revenue from services rendered. (c) Revenue from permitting others to use enterprise assets. (d) Revenue from disposing of assets other than products.
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In accounting for long-term construction-type contracts, construction costs are accumulated in an inventory account called Construction in Process (or Construction in Progress), under which method(s)?
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Reynolds has a contract to perform the payroll accounting for Dayton’s Department Stores. At the end of 2019, $6,550 of services have been performed under this contract but are unbilled. Dec. 31 Accounts Receivable 6,550 Service Revenue 6,550 (Record e
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Consigned goods are recognized as revenues by the consignor when a sale to a third party has occurred. consignor when the merchandise has been shipped to a consignee. consignee when a sale to a third
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The revenue recognition principle requires A. revenue to be recorded only after the business has earned it. B. expenses to be matched with revenue of the period. C. revenue to be recorded only after the cash is received. D. time to be divided into annual
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You borrow money in August from RBC Financial Group. The loan and the interest are repayable in full in November. When should revenue be recognized?
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In August, you order a sweater from Sears using its online catalog. The sweater arrives in September, which you charged to your Sears credit card. You receive and pay the Sears bill in October. When should revenue be recognized?
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Why are there so many revenue recognition methods? Why is it so subjective and what are the implications to the quality of the income statement?
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Costco Wholesale Corporation collects annual non-refundable membership fees from customers. When should Costco recognize revenue for these membership fees? 1) pro rata over the customer’s actual purchasing pattern 2) at the end of the membership year wh
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Agilent Technologies, Inc., a diversified technology company, sells extended warranties for the products and services provided to customers, deferring the revenue until future recognition. The following information about the extended warranty liability a
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For the risk of recording revenue in the wrong period, what is the most likely internal control weakness? Ineffective controls for testing sales invoices Ineffective input validation checks on sales d
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On November 1, 2016, Taylor signed a one-year contract to provide handyman services on an as-needed basis to King Associates, with the contract to start immediately. King agreed to pay Taylor $3,720 for the one-year period. Taylor is confident that King w
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Brady Construction Company contracted to build an apartment complex for a price of $5,100,000. Construction began 2018 and was completed in 2020. The following is a series of independent situations, n
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Revenue is recognized based on a five-step process that is applied to a company’s revenue arrangements. Requirements: 1. Describe the revenue recognition principle. Briefly describe the five-step process. 2. Explain the importance of contracts when anal
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Crane Windows manufactures and sells custom storm windows for three-season porches. Crane also provides installation service for the windows. The installation process does not involve changes in the windows, so this service can be performed by other vendo
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The Miller-Porter company sells powder coating equipment at a sales price of $50,000 per unit. The sales price includes delivery, installation, and initial testing of the equipment, as well as a monthly
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When using the percentage-of-completion method of accounting for long-term contracts, the percentage of completion used to recognize gross profit in the first year usually is determined by measuring: A. Costs incurred in the first year, divided by estima
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Ritt Ranch & Farm is a distributor of ranch and farm equipment. Its products range from small tools, power equipment for trench-digging and fencing, grain dryers, and barn winches. Most products are s
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On June 15, 2016, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $400 million. The expected completion date is April 1, 2018
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Pizza Factory enters into a franchise agreement on 11/1/16 giving Mow’s House the right to operate as a franchisee of Pizza Factory for 5 years. Pizza Factory prepared this entry on 11/1/16: Cash 40,0
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How does the accident affect the stated revenues under the different FOB contract structures? Explain.
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The revenue recognition principle requires a. time to be divided into annual periods to measure revenue properly. b. revenue to be recorded only after the business has earned it. c. expenses to be
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P18-3 (Allocate Transaction Price, Discounts, Time Value) Grill Master Company sells total outdoor grilling solutions, providing gas and charcoal grills, accessories, and installation services for cus
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The Quinlan Construction Company began work on a three-year contract in 2015. In 2015, Collections were less than Billings, which were less than Costs plus Gross Profit recognized. In what section would the Billings account appear in the financial stateme
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(Recognition of Revenue – Theory) Revenue is usually recognized at the point of sale. Under special circumstances, however, bases other than the point of sale are used for timing of revenue recognitio
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Neiman Marcus, a U.S. retailer, uses the accrual basis of accounting and follows U.S. GAAP. It recognizes revenue at the time it sells merchandise. Indicate the amount of revenue (if any) the firm recognizes during the months of February, March, and April
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Video Planet VP sells a big screen TV package consisting of a 60 inch plasma TV a universal remote and onsite installation by VP staff The installation includes programming the remote to have the TV i
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Scanlon Company sells 1,000 widgets to Avon Inc. for $14 each, FOB shipping point. The widgets are shipped on December 26, Year4 and arrive at Avon on January 3, Year5. When should Scanlon record the sales revenue? A. In Year5 B. In Year4 C. When Scanl
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Alpine West, Inc., operates a downhill ski area near Lake Tahoe, California. An all-day, adult ticket can be purchased for $55. Adult customers also can purchase a season pass that entitles the pass holder to ski any day during the season, which typically
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Southwest Airlines sells you an advance purchase airline ticket in September for your flight home at Christmas. When should the revenue from this transaction be recognized?
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Data Recovery Services (DRS) specializes in data recovery from crashed hard drives. The price charged varies based on the extent of damage and the amount of data being recovered. DRS offers a 10% disc
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Research revenue recognition, and discuss the accounting rules violated, that brought down the company, Sunbeam.
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