Exam 4: Revenue Recognition

YMN had sales of $1,500,000, including: •$25,000 of goods shipped on consignment to an unrelated company on December 28, 2012 and received by that company on December 31, 2012 •$20,000 of goods shipped F.O.B. shipping point to a different unrelated party on December 31, 2012 and received on January 2, 2013. On its income statement, what amount of net sales should YMN record for 2012?

Larimar Computers provides customers the option to purchase products with three installment payments made over 12 months (equal payments at the end of the 4th, 8th, and 12th months). In January 2012, Larimar sold $39,000 of computers to one customer on this installment plan. The cost of these computers is $30,420. Required: Using the installment sales method, record the journal entries for Larimar's installment sales made in January 2012 and the subsequent payments received on each installment date. Assume all installment payments are received, and ignore the time value of money.

On December 1, 2012, SuperTech sold 100 locks for laptop computers at $50 each with a 90-day unconditional right of return. Since this is a new product for SuperTech, it has no past history regarding estimated returns. Which of the following is true regarding SuperTech's December 31, 2012 financial statements?

Simple Inc. had sales of $1,500,000, including: •$30,000 of goods sold that were on consignment from an unrelated company on December 28, 2012 •$10,000 of goods shipped F.O.B shipping point on December 28, 2012. •$20,000 of goods shipped F.O.B. destination point on December 31, 2012. On its income statement, what amount of net sales should Simple Inc. record for 2012?

Explain how a company records revenue and expenses for a long-term contract under IFRS. Include an explanation of how changes in estimates are accounted for under this method.

Soorya Manufacturing makes educational toys that are sold to retailers on the following contractual terms: Each type of toy has a fixed wholesale price, is shipped F.O.B. shipping point, and payment is due 45 days after the shipment. The retailer may return a maximum of 45% of an order at the retailer's expense up to 6 months after delivery. Sales are made only to retailers that have a good credit rating. Required: a)Identify four different revenue recognition points that Soorya could use for its sales. b)What revenue recognition criteria should Soorya use to determine when revenue should be recorded?

In early 2009, Ecotravel Corp. won a contract to build a rapid transit line connecting downtown Vancouver to the airport and the suburb of Richmond (the RAV line). The contract was for $2.2 billion to be received over the construction period of six years, ending in November 2015. Ecotravel has a December 31 year-end and uses the percentage of completion method to account for long-term contracts. Required: a. Ecotravel's management expects the gross profit on the total project to be 20%, and that $352 million would be incurred on the project by December 31, 2009. 1. How much gross profit (or loss)will Ecotravel record in the 2009 fiscal year if management's estimates are accurate? 2. Provide the journal entry to record revenue, cost of goods sold, and expected loss (if applicable)for fiscal 2009. b. Assume that it is now early 2013 and you are preparing the adjusting entries for 2012. The accounting records indicate that, by the end of 2011, a total of $758 million in revenue and $680 million in cost of goods sold had been recorded. You also know that $372 million in costs were incurred on the project in 2012, and management's best estimates indicate another $1,208 million in costs will be required to complete the project. 1. How much gross profit (or loss)should Ecotravel record in the 2012 fiscal year if management's estimates are accurate? 2. Provide the journal entry to record revenue, cost of goods sold, and expected loss (if applicable)for fiscal year 2012.

Smile Operators entered into a contract to build a swimming complex for $1,800,000. Construction commenced on July 1, 2011, with a planned completion date of December 31, 2013. A summary of the related accounting information is provided below: How much gross profit would be recognized in 2012 if the company uses the completed contract method under ASPE?

Superior Cars sold a car for $35,000. In addition, the company will provide 4 oil changes per year for 5 years and an extended warranty for 5 years. The normal selling prices are as follows: a. Determine how revenue should be allocated to the various components in this transaction. b. Apply the appropriate revenue recognition criteria to determine when revenue should be recognized to the components in this transaction.

Philips Corp. is unsure how to record the following transactions: •$60,000 of goods shipped F.O.B shipping point on December 28, 2012. •$50,000 of goods shipped F.O.B. destination point on December 31, 2012. What amount of sales related to these two transactions should Philips Corp. record in fiscal 2012?

Which statement is correct about the impact of estimation errors on construction contracts?

In July, Telly-Rental sells a home theatre for $1,000 on an installment basis. Telly-Rental generally earns a gross margin of 25%. The customer pays $500 in December. How much revenue is recorded by Telly-Rental in December?

How is the prudence principle applied to the accounting for construction contracts?

Which of the following is an acceptable revenue-recognition method?

Tradel Construction Company entered into a contract to build a condominium building for $1,800,000. Construction commenced on July 1, 2011, with a planned completion date of December 31, 2013. A summary of the related accounting information is provided below: How much gross profit would be recognized in 2013 if Tradel uses the completed contract method?

Fancy Cars sold a car for $35,000. In addition, the company will provide 4 oil changes per year for 5 years and an extended warranty for 5 years. The normal selling prices are as follows: a. Determine how revenue should be allocated to the various components in this transaction. b. Apply the appropriate revenue recognition criteria to determine when revenue should be recognized to the components in this transaction.

Algae builds large ships and uses the percentage of completion method of revenue recognition. The following information pertains to the construction contracts it had in place as of its December 31, 2012 year-end. How much revenue will Algae recognize in 2011?

Which of the following statements is correct about the revenue recognition criteria for the provision of services?

Through non-subscription sales, TV Weekly provides retailers with a 50% margin (or 100% mark up)on its magazines. The newsstand price is $8 per issue. During 2012, the company distributed 1,654,000 copies to retailers, not all of which were sold. Retailers sent a total of 390,000 unsold copies back to the publisher, of which 30,000 copies were for last two issues published in 2011. In January 2013, the company received 27,000 unsold copies for magazines published in the last weeks of December 2012. Required: Determine the amount of revenue from non-subscriptions TV Weekly should recognize in 2012.

Based on the note disclosure provided below for BMW Group, when would the following types of revenue be recognized? a)Consignment sales of vehicles (Sales with repurchase commitments). b)Financial services. c)Lease rentals. d)Post-sale services (Multiple-component contracts). e)Sale of products. Revenues from the sale of products are recognized when the risks and rewards of ownership of the goods are transferred to the customer, the sales price is agreed or determinable and receipt of payment can be assumed. Revenues are stated net of discounts, allowances, settlement discount and rebates. In the case of long-term construction work, revenues are generally recognized in accordance with IAS 18 (Revenue)and IAS 11 (Construction Contracts)on the basis of the stage of completion of work performed using the percentage of completion method. Revenues also include lease rentals and interest income from financial services. Revenues for the Financial Operations sub-group also include the interest income earned by Group financing companies. If the sale of products includes a determinable amount for subsequent services ("multiple-component contracts")the related revenues are deferred and recognized as income over the period of the contract. Amounts are normally recognized as income by reference to the expected pattern of related expenditure. Profits arising on the sale of vehicles for which a Group company retains a repurchase commitment (buy-back contracts)are not recognized until such profits have been realized. The vehicles are included in inventories and stated at cost.