051M2.a

051M2.a - Franchisor Revenue Recognition[051M2.a On March...

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Franchisor Revenue Recognition: [051M2.a] On March 31, Year 1, Maxim Company sold a three-year franchise to an accounting professor for \$320,000. Maxim believes that 30% of its work is done at the time of signing the agreement and collecting the initial franchise fee. The remainder of the initial franchise fee is recognized evenly over the thirty-six months of the franchise agreement. Over the franchise period, the franchisor receives 8% of the franchisee’s sales to cover continuing advertising and other services. The franchisee’s sales in Years 1-4 were as follows: Year 1: \$200,000 [9 months] Year 2: \$350,000 Year 3: \$400,000 Year 4: \$100,000 [3 months] How much should Maxim report in Years 1 and 2 as total franchise revenue based on this agreement? [5 Points Each] Year 1: \$________ Year 2: \$________ Exam continued on next page. Accounting for Construction Projects: [051M2.a] Marshall Construction Company contracted to construct a bridge in Los Angeles at a price of \$9,200 [for convenience, all numbers refer to thousands of dollars]. Marshall estimated the bridge would cost \$7,100 to build. In Year 1, Marshall incurred \$3,300 costs on the bridge and billed the customer \$2,000. At the end of Year 1, Marshall estimates that the bridge will have a total cost of \$7,400 when completed. Marshall Company uses the percentage of completion method. During Year 2, Marshall spends another \$1,600 on the bridge and estimates that additional costs to complete the bridge will be \$2,400. During Year 2 Marshall Company billed the customer \$3,000 and collected \$3,800. During Year 3, Marshall spends another \$1,500 on the bridge and estimates that the costs to complete the bridge will be another \$800. During Year 3 Marshall Company billed the customer \$4,000 and collected \$4,000. Required: In Year 2, what revenues and expenses are recognized on this project? Also, what is the balance in the CIP account related to this project on December 31, Year 2? Where would this project and its related account appear in the balance sheet of the Marshall Construction Company at the end of Year 2? [8 Points Each] Construction Revenues in Year 2: \$_______ Construction Expenses in Year 2: \$_______

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CIP account balance on December 31, Year 2: \$_______ What would be the net balance appearing as a current asset or liability in the balance sheet at the end of Year 2? \$_______ CA or CL? Exam continued on next page. Uncollectible Accounts Receivable: [051M2.a] The Jackson Company sells only on account and had a balance in its Accounts Receivable [AR] account at the start of Year 2 of \$640. The balance in the Allowance for Uncollectible Accounts [AUA] at the start of Year 2 was \$45. In Year 2, the firm had credit sales of \$3,300 and collections on account of \$2,800. Write-offs and recoveries of previous write-offs in Year 2 were \$390 and \$30, respectively.
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051M2.a - Franchisor Revenue Recognition[051M2.a On March...

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