Question

Fedora’s Vases experienced all of the following events during the month of September 2020. For each transaction, give the correct amount of revenue and expense to be recognized. If nothing should be recognized, enter 0 for your answer.

a) Sold vases for $288,000 on credit. The cost of the vases was $160,000.

Revenue recognized ______

Expense recognized ______

b) Paid employees $96,000 for work performed during the months of August and September. Half of the work relates to September 2020.

Revenue recognized   ______

Expense recognized ______

c) Purchased $6,400 of shipping bubble wrap on account.

Revenue recognized   ______

Expense recognized ______

d) Used half the bubble wrap purchased above.

Revenue recognized    ______

Expense recognized ______

e) Received a $3,000 utility bill that relates to the month of September 2020. The bill will not be paid until October 15, 2020.

Revenue recognized ______

Expense recognized ______

f) Paid $6,400 to the supplier of the bubble wrap.

Revenue recognized    ______

g) Expense recognized ______

Collected $176,000 worth of receivables that relate to August 2020 credit sales.

Revenue recognized    ______

Expense recognized ______

h) Received $112,000 in advance payments for vases not yet shipped.

Revenue recognized    ______

Expense recognized ______

i) Sold vases for $80,000 on credit. The vases cost $48,000.

Revenue recognized    ______

Expense recognized ______

What was the net income for Fedora's Vases for the month of September considering only the transactions above?

Fedora's net income for September ______

Answer 1

Answers:

a. Revenue recognised = $288,000

Expense recognised = $160,000

b. Revenue recognised = $0

Expense recognised = $48,000 (i.e., $96,000/2)

c. Revenue recognised = $0

Expense recognised = $0

d. Revenue recognised = $0

Expense recognised = $3,200 (i.e., $6,400/2)

e. Revenue recognised = $0

Expense recognised = $3,000

f. Revenue recognised = $0

Expense recognised = $0

g. Revenue recognised = $0

Expense recognised = $0

h. Revenue recognised = $0

Expense recognised = $0

I. Revenue recognised = $80,000

Expense recognised = $48,000

Fedora's Net Income for September = $105,800

Explanation and workings:

Fedora's Net Income for September = Total Revenue for the month of September - Total Expenses for the month of September = $368,000 - $262,200 = $105,800

{Total Revenue for the month of September = $288,000 + $80,000 = $368,000

Total Expenses for the month of September = $160,000 + $48,000 + $3,200 + $3,000 + $48,000 = $262,200}

Accrual concept is the most fundamental principle of accounting which requires recording revenues when they are earned and not when they are received in cash, and recording expenses when they are incurred and not when they are paid. Based on the accrual concept the revenue and expenses for the month of September are recognised.

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