ACG 3101 Lecture 12: Chapter 18 notes part 1
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A New York City daily newspaper called “Manhattan Today” chargesan annual subscription fee of $108. Customers prepay theirsubscriptions and receive 220 issues over the year. To attract moresubscribers, the company offered new subscribers the ability to pay$110 for an annual subscription that also would include a coupon toreceive a 40% discount on a one-hour ride through Central Park in ahorse-drawn carriage. The list price of a carriage ride is $100 perhour. The company estimates that approximately 30% of the couponswill be redeemed. |
Required: |
1. | How much revenue should Manhattan Todayrecognize upon receipt of the $110 subscription price? |
2. | How many performance obligations exist inthis contract? |
3. | Prepare the journal entry to recognize sale of 11 newsubscriptions, clearly identifying the revenue or unearned revenueassociated with each performance obligation. (If no entryis required for a transaction/event, select "No journal entryrequired" in the first account field.) |
A New York City daily newspaper called “Manhattan Today” chargesan annual subscription fee of $270. Customers prepay theirsubscriptions and receive 280 issues over the year. To attract moresubscribers, the company offered new subscribers the ability to pay$260 for an annual subscription that also would include a coupon toreceive a 40% discount on a one-hour ride through Central Park in ahorse-drawn carriage. The list price of a carriage ride is $250 perhour. The company estimates that approximately 30% of the couponswill be redeemed. |
Required: |
1. | How much revenue shouldManhattan Today recognize upon receipt of the $260 subscriptionprice? |
Answer: No Revenue Recognize
2. | How many performanceobligations exist in this contract? |
Answer: 2
3. | Prepare the journal entry to recognize sale of 10 newsubscriptions, clearly identifying the revenue or unearned revenueassociated with each performance obligation. (If no entryis required for a transaction/event, select "No journal entryrequired" in the first account field.) |
Answer: |
Credit. Deferred Revenue--Subscription [ ? ] Credit. Deferred Revenue--Coupon [ ? ] Show Steps please |
In class we discussed a number of situations where a sellercould recognize revenue before it has fully completed everyobligation under a contract. Which of the following items does NOTrepresent one of these situations?
Sale without a fixed price |
Substantial completion of a contract (i.e., onlyinconsequential obligations remain) |
A multiple-element arrangement |
Percentage-of-completion accounting for a long-termcontract |
Bill-and-hold sale |
Sale with a return policy (provided certain conditions aremet) |
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Question 21 pts
In class we discussed a couple situations where a seller wouldnot be able to recognize revenue even though it had shipped an itemto a customer. Which of the following items does NOT represent oneof these situations? (i.e., in which of these cases can revenue berecognized?)
Goods shipped but still in transit, with FOB shipping pointterms |
Goods shipped but still in transit, with FOB destinationterms |
Goods delivered on consignment |
Goods delivered to a customer, where customer acceptance hasn’tyet occurred |
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Question 31 pts
Seller’s sales contract specifies that legal title transfers tocustomers upon shipment from its facility. However, in the eventthat a product is lost or damaged in shipment, Seller has a pastpractice of supplying a replacement product at no charge to thecustomer. When should Seller recognize revenue?
When the product arrives at the customer’s facility |
When the product is shipped from Seller’s facility |
When Seller receives payment from the customer |
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Question 41 pts
For which type of customer acceptance are revenues recognizednet (instead of gross)?
Acceptance based on subjective criteria |
Acceptance based on customer-specified objective criteria |
Acceptance based on seller-specified objective criteria |
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Question 51 pts
In 2015, Constructor Corp. began a three-year, long-termconstruction project that qualified for percentage-of-completionaccounting. Constructor’s customer agreed to pay $300,000. By theend of 2015, Constructor had incurred costs of $60,000 and expectedto spend an additional $180,000 over the next two years. How muchrevenue will Constructor report on the project in its 2015 incomestatement?
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Question 61 pts
On December 12, 2014, Customer purchased two pieces of equipmentfor $105. Seller delivered Item A on December 13 but doesn’t expectto deliver Item B until the following February. Seller doesn’t selleither items separately (only as a pair), but Seller estimates theindividual selling prices to be $40 for item A and $80 for item B.Assuming this contract meets the criteria for separation as amultiple-element arrangement, how much revenue can Seller recognizein the fiscal year ending December 31, 2014?