For each situation indicate when a company should recognize revenue: Situation Recognition of Revenue a. On...

For each situation indicate when a company should recognize revenue:

	Situation	Recognition of Revenue
a.	On June 2, 2017, a customer books travel on an airline, paying $500 for a round-trip ticket that departs July 15, 2017, and returns July 20, 2017. In addition, once the round-trip ticket is used, the airline credits the passenger's frequent-flier account for 500 miles. The airline determines that each frequent-flier point has a value of $0.01.
b.	On May 1, 2017, a retailer enters into a contract with a construction company. The construction company will build a new warehouse for the retailer at a price of $2 million. The retailer will make four equal payments to the construction company over the 1-year construction period, starting on May 1, 2017, and then every 4 months. The retailer can cancel construction at any time and will own any construction to date; however, it must pay the construction company for work done up to the cancellation date. The building is completed on April 30, 2017.
c.	Morning Donut agrees to supply donuts and coffee on a daily basis to a local business. The contract starts on January 1, 2017, and runs for 1 year. Morning Donut charges $400 per week for the donuts and coffee.
d.	The Raleigh Knights sell four season tickets to a customer. The Knights play 10 regular season games, and the cost of one season ticket is $250.

Solutions

Expert Solution

Revenue is recognized only when it is earned i.e. the customer received the service or product for which they have paid or will pay in future.

Since customer has booked the ticket only but not completed the trip,

hence the revenue has not been earned and hence cannot be recognized.

Since the building has been completed, therefore the revenue has been earned

hence the revenue can be recognized.

Since there is no transaction i.e. supply of donut actually happened,

therefore revenue cannot be recognized.

Since season games is yet to be played, therefore customer has not received the service.

Hence revenue cannot be recognized.

ekkarill92 answered 11 months ago

Next > < Previous

Related Solutions

For each of the following situations, indicate the amount of revenue that the government should recognize...

For each of the following situations, indicate the amount of revenue that the government should recognize in an appropriate governmental fund as well as in its government-wide statement of activities in its fiscal year ending December 31, 2021. Briefly justify your response, making certain that, as appropriate, you identify the key issue of concern. 1. In October 2020, a state received a federal grant of $300 million (in cash) to assist local law enforcement efforts. The federal government has established...

f. Refer to Apple’s revenue recognition footnote. In particular, when does the company recognize revenue for...

f. Refer to Apple’s revenue recognition footnote. In particular, when does the company recognize revenue for the following types of sales? i. iTunes songs sold online. ii. Mac-branded accessories such as headphones, power adaptors, and backpacks sold in the Apple stores. What if the accessories are sold online? iii. iPods sold to a third-party reseller in India.

P. 4-2 For each of the following indicate the amount of revenue that Beanville should recognize...

P. 4-2 For each of the following indicate the amount of revenue that Beanville should recognize in its 2017 (1) government-wide statements and (2) governmental fund statements. Provide a brief justification or explanation for your responses. The state in which Beanville is located collects sales taxes for its cities and other local governments. The state permits small merchants to remit sales taxes quarterly. The state sales tax rate is 6 percent. In December 2016, city merchants collected $50 million in...

P. 4-2 For each of the following indicate the amount of revenue that Beanville should recognize...

P. 4-2 For each of the following indicate the amount of revenue that Beanville should recognize in its 2020 (1) government‐wide statements and (2) governmental fund statements. Provide a brief justification or explanation for your responses. The state in which Beanville is located collects sales taxes for its cities and other local governments. The state permits small merchants to remit sales taxes quarterly. The state sales tax rate is 6 percent. In December 2019, city merchants collected $50 million in...

1. determine when the seller should recognize revenue. 2. Explain your answer using GAAP revenue recognition guidelines....

1. determine when the seller should recognize revenue. 2. Explain your answer using GAAP revenue recognition guidelines. 3. Explain how each transaction would appear on the income statement and balance sheet for 2017. Case 3-Your company sells a product bundle of software that includes a 3 year service contract for $100,000, Your company installed the software on July 1, 2018, and the client paid $50,000 cash. Thebalance is due on December 31, 2018. Identify the performance obligations and the revenue in...

1. determine when the seller should recognize revenue. 2. Explain your answer using GAAP revenue recognition guidelines....

1. determine when the seller should recognize revenue. 2. Explain your answer using GAAP revenue recognition guidelines. 3. Explain how each transaction would appear on the income statement and balance sheet for 2017. Case 1: Your construction company entered into a four year contract to build a store for a fixed price of$7,000,000. You estimated your costs at 6,200,000. At the end of the 2nd year you estimate that you are 50% complete and your estimate to complete will be 7,500,000 because of...

When should each of the following companies recognize revenue for the following operations? Identify potential revenue...

When should each of the following companies recognize revenue for the following operations? Identify potential revenue recognition issues or risk exposures facing the company: PLEASE ANSWER THE FOLLOWING QUESTIONS a. Costco Wholesale Corporation collects annual membership fees from customers. b. The New York Times receives advertising revenues in advance from Citigroup, for an ad campaign that will run a full-page spread once a week for six months. c. Zappos is an online clothing and shoe retailer. It receives credit card...

When should each of the following companies recognize revenue for the following operations? Identify potential revenue...

When should each of the following companies recognize revenue for the following operations? Identify potential revenue recognition issues or risk exposures facing the company: a. Costco Wholesale Corporation collects annual membership fees from customers. b. The New York Times receives advertising revenues in advance from Citigroup, for an ad campaign that will run a full-page spread once a week for six months. c. Zappos is an online clothing and shoe retailer. It receives credit card payments when customers place their...

Required: For each of the following independent items, indicate when revenue should be recognized.For each of...

Required: For each of the following independent items, indicate when revenue should be recognized.For each of the following independent items, indicate when revenue should be recognized. Questions: e. Growing, harvesting, and marketing of Christmas trees; the production cycle is ten years. f. Building houses in a subdivision, when the project will take two years to complete and each house must be individually sold by the contractor. The contractor owns each house until title is transferred to the new owner. g....

When should Collins recognize revenue for the initial and continuing franchise fees?

Collins, Inc., entered into a 10-year franchise agreement with an individual. For an initial franchise fee of $40,000, Collins agrees to assist in the design and construction of the franchise location and in all other necessary start-up activities. Also, in exchange for advertising and promotional services, the franchisee agrees to pay continuing franchise fees equal to 5% of revenue generated by the franchise. When should Collins recognize revenue for the initial and continuing franchise fees?

Subjects