AFA 100 Study Guide - Final Guide: The Law Firm

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ochregnat479

27 Jul 2017

School

Ryerson University

Department

Accounting

Course

AFA 100

Professor

Jason Chin- Tiong Chan

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Document Summary

Jym gym & yoga inc. runs a gym and yoga centre. This year jym signed a contract with a local law firm to provide yoga classes for all their employees. The law firm paid ,000 as a non- refundable down payment and will pay the remaining ,000 evenly over the next 12 months. The law firm has the right to cancel the contract at any time, at which time they will no longer have to pay the monthly amount. The law firm employees are required to call and make a reservation for the classes they wish to participate in. There is no limit to the number of classes the employees may attend. The products are high end and customers must order at least 4 - 6 months in advance of when they want the gym equipment as it is shipped in from the uk. On december 15th abc inc. received an order from a customer for equipment valued at ,000.

Related Questions

Required: For each of the scenarios, determine whetherthe seller should recognize revenue (a) over time or (b) when theproduct or service is completed. Explain the your answer using GAAPrevenue recognition rules and how each would appear on the incomestatement and balance sheet.

Consider each of the following scenarios separately:

Scenario 1: Your construction company enteredinto a contract with Starwood Hotel to build a highlysophisticated, customized conference room to be completed for afixed price of $400,000. Nonrefundable progress payments are madeon a monthly basis for work completed during the month. Legal titleto the conference room equipment is held by your company until theend of the construction project, but if the contract is terminatedbefore the conference room is finished, Starwood retains thepartially completed job and must pay for any work completed todate.

Scenario 2:Your Company entered into a contractwith Starwood Hotel for constructing and installing a standarddesigned gym for a fixed price of $400,000. Nonrefundable progresspayments are made on a monthly basis for work completed during themonth. Legal title to the gym passes to Starwood upon completion ofthe building process. If Starwood cancels the contract before thegym construction is completed, your company removes all theinstalled equipment and Starwood must compensate your company forany loss of profit on sale of the gym to another customer.

Scenario 3: On January 1, your consulting firm,entered into a three-month contract with Bad Food Restaurant toanalyze its cost structure in order to find a way to reduceoperating costs and increase profits. Your company promises toshare findings with the restaurant every two weeks and to providethe restaurant with a final analytical report at the end of thecontract. This service is customized to Bad Food, and your companywould need to start from scratch if it provided a similar serviceto another client. Bad Food promises to pay $5,000 per month. IfBad Food chooses to terminate the contract, it is entitled toreceive a report detailing analyses to that stage.

Scenario 4: Your Company is developing luxuryresidential real estate and begins to market individual apartmentsduring their construction. Your Company entered into a contractwith Smith for the sale of a specific apartment. Smith pays adeposit that is refundable only if the your company fails todeliver the completed apartment in accordance with the contract.The remainder of the purchase price is paid on completion of thecontract when Smith obtains possession of the apartment.

periwinklescorpion875

Anderson Accounting Services LLC provides accounting and tax preparation and consulting services. Sometimes customers only wish to have financial statements and/or tax returns prepared. Sometimes customers bundle accounting and tax preparation with consulting services (to be provided over a period of time). Sometimes customers only wish to have consulting services provided over a period of time. Because Anderson is a service firm there is no cost of goods sold associated with their services.

Customer is Civic Corporation	1
Tax consulting begins on November 1st and runs through the next April	11/1/X7
Date of contract	11/1/X7
Length of consulting services	6 months	months
Tax return preparation occurs over the period February through April of	20X8
Length of tax prepartion	3 months
Price of tax preparation to be allocated over the return preparation period	$ 2,000	stand alone price
Price of consulting services to be allocated over consulting period	$ 5,000	stand alone price
Customers are charged a lesser amount as follows for both tax and consulting	$ 6,000
Anderson Accounting Services LLC's current year end	12/31/X7
Customers pay at the contract date for BOTH the consulting and tax preparation services.

What are the performance obligations in the contract?

Tax preparation services

Tax preparation services and tax consulting services

Unable to determine

D.Tax consulting services

QUESTION 3

Determine the transaction price that should be allocated to the consulting services.

	A.	$4,286
	B.	$1,714
	C.	$1,429
	D.	$4,571

QUESTION 4

Calculate the total revenue that should be recognized in the current accounting period.

	A.	$4,571
	B.	$1,714
	C.	$1,429
		D. $4,286

QUESTION 5

What is the total amount in the deferred revenue account(s) at the end of the current accounting period?

	A.	$1,714
	B.	$4,571
	C.	$4,286
	D.	$1,429

QUESTION 6

What is the total amount of revenue that should be recognized in the NEXT accounting period period?

	A.	$1,714
	B.	$4,286
	C.	$1,429
	D.	$4,571

QUESTION 7

The following journal entry has what impact on the income statement?

Debit Cash XXX

Credit Deferred Revenue XXX

	A.	No impact
	B.	Decrease
	C.	Increase

QUESTION 8

The following journal entry has what impact on the income statement?

Debit Cash XXX

Credit Accounts Receivable XXX

	A.	No impact
	B.	Increase
	C.	Decrease

QUESTION 9

Revenue is defined as:

An inflow or other enhancements of assets of an entity or settlement of its liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or other activities that constitute the entityâs ongoing major or central operations.

Revenue is recognized from the settlement of which of the following liabilities:

	A.	Discount on Bonds Payable
	B.	Deferred Revenue
	C.	Salaries Payable
	D.	Accrued Interest

QUESTION 10

A customer must have "control" over the good or service in order for a performance obligation to be considered as having been satisfied for purposes of revenue recognition.

	A.	TRUE
	B.	FALSE

AFA 100 Study Guide - Final Guide: The Law Firm

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