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071m2a - Franchisors and Revenue Recognition[071M2a The Kim...

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Franchisors and Revenue Recognition: [071M2a] The Kim Company sells accounting tutoring franchises to educational centers near major universities. The initial franchise fee is $65,000 and the educational centers pay in full when they apply for the franchise. Kim carefully reviews these applications before granting franchises. When granting the franchise, Kim properly treats 35% of the initial franchise fee as earned immediately. The remainder is earned evenly over the six-year franchise period. On November 1, Year 1, an individual was granted an accounting tutoring franchise by the Kim Company. Required: $________ How much revenue would Kim Company recognize in Year 1 as a result of this one franchise? $________ How much Unearned Franchise Revenue would Kim Company show in its December 31, Year 1, balance sheet as a result of this one franchise? $________ How much revenue would Kim Company recognize in Year 2 as a result of this one franchise? Exam continued on next page. Accounting for Long-Term Construction Contracts: [071M2a] Darin Company owns a construction company that builds major projects around the world for its customers. The firm uses the percentage of completion method. In Year 1, Darin contracted to build a 26-mile toll road in Los Angeles. The contract price was $249,000. Darin had initially estimated the toll road would cost $226,000 to build. Construction costs on the bridge in Year 1 were $108,000. At the end of Year 1, Darin estimated that the completed bridge’s costs would total $231,000. In Year 1, Darin billed its customer $158,000 and collected 60% of the amount billed in Year 1. In Year 2, Construction costs on the bridge in Year 2 were $68,000. At the end of Year 2, Darin estimated that the costs necessary to complete the bridge would total $50,000. In Year 2, Darin billed its customer $70,000 and collected 120% of the amount billed. Required: $________ At the end of Year 1, what is the proper balance in the firm’s Construction-in- Progress account? $________ CA or CL At the end of Year 1, what net amount* would appear in the firm’s current asset section or in its current liability section in the firm’s balance sheet? Specify whether this amount is a current asset [CA] or current liability [CL] by circling the appropriate abbreviation. [*This net amount is the difference between the Progress Billings and Construction-in-Progress account balances on that date.]
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$________ At the end of Year 2, what is the proper balance in the firm’s Construction-in- Progress account? $________ CA or CL At the end of Year 2, what net amount would appear in the firm’s current asset section or in its current liability section in the firm’s balance sheet? Specify whether this amount is a current asset [CA] or current liability [CL] by circling the appropriate abbreviation. Exam continued on next page. Accounting for Purchases, Sales and Ending Inventory : [071M2a] Andrew Company concluded its annual physical inventory at noon on December 31, Year 1.
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