Question

1. During the annual fund-raising drive, the Cancer Society raised $900,000 in pledges of financial support for general operations. By fiscal year-end, the society had collected $600,000 of the pledges. The society estimates that 10% of the remaining pledges will be uncollectible. The NET amount of revenue the society should recognize during the current year from this pledge drive is

1. $900,000.

2. $870,000. answer

3. $810,000.

4. $600,000.

2.

1. In June 2015, a public university bills and collects $45 million in tuition for the summer semester that runs from June 1 through July 15. In addition, in May and June it bills $300 million for the fall semester that runs from September 1 through December 15. Of this amount it collects only $120 million (expecting to collect the balance prior to September 1). In its statement of revenues, expenses, and changes in net position for the fiscal year ending June 30, 2015 it should recognize as tuition revenue

a) $30 million , answer

b) $45 million

c) $150 million

d) $165 million

3. In 2014, a public university was awarded a federal reimbursement grant of $18 million to carry out research. Of this, $12 million was intended to cover direct costs and $6 million to cover overhead. In a particular year, the university incurred $4 million in allowable direct costs and received $3.4 million from the federal government. It expected to incur the remaining costs and collect the remaining balance in 2015. For 2014 it should recognize revenues from the grant of

a) $3.4 million

b) $4.0 million

c) $6.0 million , answer

d) $18.0 million

I have the answer, but please explain briefly how to get the answer and why.  

Answer 1

Answer:

1.)

The net amount of revenue society should recognize is $87000 because it has raised the $90000 pledges out of which till the year end it has collected $60000 and out of remaing $300000 10% is uncollectible so the amount will be $90000-$300000*10%=$ 870000

2.) Option (a) $30 million

Explanation:

• As per IFRS, revenues are recognized on accrual basis.
• Accrual basis states that revenues (and expenses) are recognized in that period for which they actually relate to and not when they are received (or actually spent).
• In the given question, the university has received $ 45 million for the period June 1 to July 15. It has also received $ 120 million for services for the period September 1 to December 15.
• So, in effect, we have received $ 45 million are for 1.5 months. As our fiscal year ends on June 30, 2015, we need to consider/accrue the income for June 1 to June 30 only. Therefore, the university should recognize the revenues of $ 30 million [i.e. $ 45 million * 1 / 1.5] for June 2015.

Note:

1. The remaining $ 15 million (i.e. 45 million less 30 million already accrued in June 2015) will be recognized as revenue in July 2015.

2. The revenues of $ 300 million would be recognized in the period from September 1 to December 15, 2015 (the period they related to).

3.) Option (c) $6.0 million

The answer is $6 million since the university incurred only $4 million in direct cost out of $12 million alloted which is 33%(4/12)
so it should recognize revenue only 33% portion of total $18 million and it is $(1/3)*18=$6 million