1. The new ASC Topic 606 provides a model for revenue recognition that includes:

Multiple Choice

• two steps.

• four steps.

• five steps.

• three steps.

2. Which of the following statements is true regarding the five-step model in the ASC Topic 606 guidance for revenue recognition?

Multiple Choice

• The transaction price is not relevant.

• If a sale is not paid for on time, the seller should not recognize revenue.

• The performance obligations in the contract need to be identified.

• The sale itself is the sole criterion for recognizing revenue.

Hale Nelson, CPA, is engaged to audit the financial statements of Hollis Manufacturing, Inc. Hollis engages in very complex sales agreements that create issues with respect to revenue recognition. As a result, Nelson has identified revenue recognition as an audit area of signifi-cant risk that requires special audit consideration.a. Describe the implications of Nelson’s identification of revenue recognition as an area of significant risk. b. Describe how Nelson might decide to react to the significant risk related to revenue recognition.

Selcomm Communications received cash of $12,000 on October 1, 2015 as prepayment for 12 months’ rent. The accountant recorded the cash receipt as a credit to Rent Revenue and a debit to Cash. What is the year-end adjusting entry on December 31?

options:

1. What is an indifference curve?

   	A.	An inverse demand curve.
   	B.	An exponential supply curve.
   	C.	A curve that shows how people don’t care about certain goods.
   	D.	A curve showing different combinations of goods that represent equally satisfying levels of consumption to an individual.

QUESTION 2

1. The following are properties of an indifference curve:

   	A.	They are bowed outward.
   	B.	Indifference curves for the same individual do not cross.
   	C.	They slope upward.
   	D.	All of the above.

QUESTION 3

1. Producing 1 unit costs $2, 2 units cost $3, 3 units cost $6, and 4 units cost $11. What is the marginal cost of the 4^th unit?

   	A.	$2.75
   	B.	$5
   	C.	$11
   	D.	$22

QUESTION 4

1. How do accountants calculate profit?

   	A.	Average revenue minus variable costs
   	B.	Marginal revenue minus average cost
   	C.	Total revenue minus explicit costs
   	D.	Total revenue minus explicit and implicit costs

QUESTION 5

1. How do economists calculate profit?

   	A.	Total revenue minus total monetary costs.
   	B.	Total revenue minus total costs including opportunity costs.
   	C.	Marginal revenue minus fixed costs.
   	D.	Average revenue minus average cost.

Analyzing Unearned Revenue Changes

Take-Two Interactive Software, Inc. (TTWO) is a developer, marketer, publisher, and distributor of video game software and content to be played on a variety of platforms. There is an increasing demand for the ability to play these games in an online environment, and TTWO has developed this capability in many of its products. In addition, TTWO maintains servers (or arranges for servers) for the online activities of its customers.

TTWO considers that its products have multiple performance obligations. The first performance obligation is to provide software to the customer that enables the customer to play the game offline or online. That performance obligation is fulfilled at the point at which the software is provided to the customer. In addition, TTWO’s customers benefit from “online functionality that is dependent on our online support services and/or additional free content updates.” This second performance obligation is fulfilled over time, and the estimated time period for which an average user plays the software product is judged to be a faithful depiction of the fulfillment of this performance obligation.

At the beginning of the first quarter of fiscal year 2018, TTWO had a deferred net revenue liability of $566,141 thousand. When that quarter ended on June 30, 2018, the deferred net revenue liability was $466,429 thousand. Revenue for the quarter was $387,982 thousand.

a. What would cause the deferred net revenue liability to go down over the quarter?

TTWO must have recognized less in revenue than it sold during the quarter.

TTWO must have recognized the same amount in revenue as it sold during the quarter.

TTWO must have recognized more in revenue than it sold during the quarter.

None of these are correct.

b. What was the amount of online-enabled games purchased by TTWO’s customers in the first quarter ended June 30, 2018?

Answer (in thousands)


Were the purchases greater or less than the revenue recognized in the income statement?

Purchases were less than the revenue recognized in the income statement.

Purchases were greater than the revenue recognized in the income statement.

Purchases were equal to the revenue recognized in the income statement.

Not enough infomation is provided to answer the question.

Analyzing Unearned Revenue Changes Take-Two Interactive Software, Inc. (TTWO) is a developer, marketer, publisher, and distributor of video game software and content to be played on a variety of platforms. There is an increasing demand for the ability to play these games in an online environment, and TTWO has developed this capability in many of its products. In addition, TTWO maintains servers (or arranges for servers) for the online activities of its customers. TTWO considers that its products have multiple performance obligations. The first performance obligation is to provide software to the customer that enables the customer to play the game offline or online. That performance obligation is fulfilled at the point at which the software is provided to the customer. In addition, TTWO’s customers benefit from “online functionality that is dependent on our online support services and/or additional free content updates.” This second performance obligation is fulfilled over time, and the estimated time period for which an average user plays the software product is judged to be a faithful depiction of the fulfillment of this performance obligation. At the beginning of the first quarter of fiscal year 2018, TTWO had a deferred net revenue liability of $509,527 thousand. When that quarter ended on June 30, 2018, the deferred net revenue liability was $419,786 thousand. Revenue for the quarter was $349,184 thousand.

a. What would cause the deferred net revenue liability to go down over the quarter?

-TTWO must have recognized less in revenue than it sold during the quarter.

- TTWO must have recognized the same amount in revenue as it sold during the quarter.

- TTWO must have recognized more in revenue than it sold during the quarter.

- None of these are correct.

b. What was the amount of online-enabled games purchased by TTWO’s customers in the first quarter ended June 30, 2018? Answer (in thousands)

Were the purchases greater or less than the revenue recognized in the income statement?

- Purchases were less than the revenue recognized in the income statement.

- Purchases were greater than the revenue recognized in the income statement.

- Purchases were equal to the revenue recognized in the income statement.

- Not enough information is provided to answer the question.

Natalie Koebel spent much of her childhood learning the art of cookie-making from her grandmother. They spent many happy hours mastering every type of cookie imaginable and later devised new recipes that were both healthy and delicious. Now at the start of her second year in college, Natalie is investigating possibilities for starting her own business as part of the entrepreneurship program in which she is enrolled.

A long-time friend insists that Natalie has to include cookies in her business plan. After a series of brainstorming sessions, Natalie settles on the idea of operating a cookie-making school. She will start on a part-time basis and offer her services in people’s homes. Now that she has started thinking about it, the possibilities seem endless. During the fall, she will concentrate on holiday cookies. She will offer group sessions (which will probably be more entertainment than education) and individual lessons. Natalie also decides to include children in her target market. The first difficult decision is coming up with the perfect name for her business. She settles on “Cookie Creations,” and then moves on to more important issues.

Instructions

(a) What form of business organization—proprietorship, partnership, or corporation— do you recommend that Natalie use for her business? Discuss the benefits and weaknesses of each form that Natalie might consider.

(b) Will Natalie need accounting information? If yes, what information will she need and why? How often will she need this information?

(c) Identify specific asset, liability, revenue, and expense accounts that Cookie Creations will likely use to record its business transactions.

(d) Should Natalie open a separate bank account for the business? Why or why not?

(e) Natalie expects she will have to use her car to drive to people’s homes and to pick up supplies, but she also needs to use her car for personal reasons. She recalls from her first-year accounting course something about keeping business and personal assets separate. She wonders what she should do for accounting purposes. What do you recommend?

1. On January 1, Revis Consulting entered into a contract to complete a cost reduction program for Green Financial over a six-month period. Revis will receive $68,000 from Green at the end of each month. If total cost savings reach a specific target, Revis will receive an additional $34,000 from Green at the end of the contract, but if total cost savings fall short, Revis will refund $34,000 to Green. Revis estimates an 80% chance that cost savings will reach the target and calculates the contract price based on the expected value of future payments to be received.

Required:
Prepare the following journal entries for Revis:

1. to 3. Prepare the journal entry on January 31 to record the collection of cash and recognition of the first month’s revenue. Also record the entry on June 30 for receipt of the bonus assuming total cost savings exceed target. And record the entry on June 30 for payment of the penalty assuming total cost savings fall short of target. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Video Planet (VP) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and on-site installation by VP staff. The installation includes programming the remote to have the TV interface with other parts of the customer’s home entertainment system. VP concludes that the TV, remote, and installation service are separate performance obligations. VP sells the 60-inch TV separately for $2,130 and sells the remote separately for $290, and offers the entire package for $2,660. VP does not sell the installation service separately. VP is aware that other similar vendors charge $340 for the installation service. VP also estimates that it incurs approximately $290 of compensation and other costs for VP staff to provide the installation service. VP typically charges 30% above cost on similar sales.

Required:
1. to 3. Calculate the stand-alone selling price of the installation service using each of the following approaches.
a) adjusted market assessment, b) expected cost plus margin, c) residual

The following account balances were included in the trial balance of Sarasota Corporation at June 30, 2017. Sales revenue $ 1,579,860 Depreciation expense (office furniture and equipment) $ 6,762 Sales discounts 31,690 Property tax expense 6,843 Cost of goods sold 897,100 Bad debt expense (selling) 4,503 Salaries and wages expense (sales) 56,690 Maintenance and repairs expense (administration) 8,281 Sales commissions 98,950 Office expense 5,980 Travel expense (salespersons) 31,900 Sales returns and allowances 63,694 Delivery expense 23,150 Dividends received 39,910 Entertainment expense 15,110 Interest expense 16,440 Telephone and Internet expense (sales) 9,080 Income tax expense 98,290 Depreciation expense (sales equipment) 5,069 Depreciation understatement due to error—2014 (net of tax) 17,004 Maintenance and repairs expense (sales) 6,440 Dividends declared on preferred stock 9,210 Miscellaneous selling expenses 5,045 Dividends declared on common stock 38,360 Office supplies used 3,368 Telephone and Internet expense (administration) 3,097 The Retained Earnings account had a balance of $ 364,510 at July 1, 2016. There are 83,970 shares of common stock outstanding. Using the multiple-step form, prepare an income statement for the year ended June 30, 2017. (Round earnings per share to 2 decimal places, e.g. 1.48.) SARASOTA CORPORATION Income Statement $ : List of Accounts Prepare a retained earnings statement for the year ended June 30, 2017. (List items that increase adjusted retained earnings first.) SARASOTA CORPORATION Retained Earnings Statement $ : List of Accounts Using the single-step form, prepare an income statement for the year ended June 30, 2017. (Round earnings per share to 2 decimal places, e.g. 1.48.) SARASOTA CORPORATION Income Statement $ $ $ eTextbook and Media List of Accounts Prepare a retained earnings statement for the year ended June 30, 2017. (List items that increase adjusted retained earnings first.) SARASOTA CORPORATION Retained Earnings Statement $ :