Question

1. Hickory Furniture Company paid for the following costs during the month of May:

Inventory purchases	$	40,000
Advertising costs		8,000
Delivery costs		2,000

Hickory sold $32,000 of the inventory and has agreed to pay warranty expenses for its customers. These are expected to be $1,600 and occur evenly over the next four months (i.e., starting in June).

What is the amount of Hickory’s cash-basis expenses for the month of May?

Multiple Choice

• $33,600

• $50,000

• $42,400

• $51,600

2. The residual approach to allocate transaction prices to multiple performance obligations in a contract is appropriate when:

Multiple Choice

• None of the goods and services included in the contract are not sold on a stand-alone basis.

• None of the answer choices are correct.

• The stand-alone price of all of the goods or services is known.

• The stand-along price of one or more of the goods or services is highly variable or uncertain.

3. A patient of Dr. Jones presents his Medicare card after his appointment. The total charge for the services was $100; however, Medicare will pay only $60 for this service and the patient is to pay $20. Acceptance of the patient’s Medicare insurance creates a contract:

Multiple Choice

• for payment of $60 and a price concession of $40.

• for $20 and an $80 discount or price concession.

• for payment of $100, regardless of what Medicare will pay.

• for payment of $80 and a $20 discount or price concession.

Answer 1

warranty costs is financial obligations that company have to fulfill in case of low quality or non performance of goods or service.

warrant cost are contingent losses baaes on uncertain future events.

Accrual basis accounting:

Warranty expense is recorded as it gets accrued.Expenses are recorded as per the matching principle to record expense in the same period of sales.

It is recorded as liability under current liability head on Balance sheet.

Cash basis:

Warranty expense is recorded as an expense when company actually incurs cost associated with warranty.

What is the amount of Hickory’s cash-basis expenses for the month of May?

=Inventory purchase for May+Advertising cost+delivery cost

[It wont include warranty expense as they are not actually incurred in May & Hickory uses cash basis]

[Also entire inventory purchased will be recorded as an expense as it uses cash basis accounting]

=$40,000+$8,000+$2,000

=$50,000

Answer B)

Sorry we can answer only one question per post.

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