Chap009 - The Income Statement and the Statement of Cash...

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Unformatted text preview: The Income Statement and the Statement of Cash Flows SOLUTIONS: E9-1. 6/9/02 21 days 6/30/02 28 days 7/28/02 a. For the year end June 30, 2002, recognize 21/49 of summer school tuition, because that proportion of the summer session occurs within the first fiscal year. Summer session expenses will be accrued or deferred (i.e., recognized as incurred), so an appropriate matching of revenue and expense will occur in each fiscal year. Amount of revenue for the year ended June 30, 2002 = (21/49 * $112,000) = $48,000 b. No. Revenues and expenses would still be allocated to each fiscal year to achieve the most appropriate matching (based on when revenues are earned and when expenses are incurred ). Since revenues are earned as services are provided, the critical event is the offering of classes rather than the university’s tuition refund policy. Thus, the amounts calculated in part a would still result in the most meaningful financial statements for each fiscal year. E9-2. a. Season ticket price. ..................................................................................... $84.00 Price of first program event ........................................................................ (20.00) Balance for 5 remaining events................................................................... $64.00 Price per event............................................................................................. $12.80 After 3 events, $45.60 ($20.00 + $12.80 + $12.80) of revenue has been earned from each ticket. Thus, total season ticket revenue earned = ($45.60 * 1,200 tickets) = $54,720 b. The fact that all tickets aren't used is irrelevant to the revenue recognition process because the critical event is the delivery of the service (i.e., presentation of the program). E9-3. Solution approach: Use the cost of goods sold model with hypothetical data that are the same except for the item in error: "Error" "Correct" Beginning inventory................................................................ $100,000 $100,000 Add: Purchases........................................................................ 300,000 300,000 Goods available for sale.......................................................... $400,000 $400,000 Less: Ending inventory............................................................ (125,000 ) (75,000 ) Cost of goods sold................................................................... $275,000 $325,000 The overstatement of ending inventory causes cost of good sold to be too low, so gross profit and operating income are too high, or overstated, by $50,000. Chapter 9 E9-4. a. "Error" "Correct" Beginning inventory............................................................ $100,000 $100,000 Add: Purchases.................................................................... 300,000 300,000 Goods available for sale...................................................... $400,000 $400,000 Less: Ending inventory........................................................ Less: Ending inventory....
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This note was uploaded on 04/04/2009 for the course ACC ACC/539 taught by Professor Michaeldonohoe during the Fall '05 term at University of Phoenix.

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Chap009 - The Income Statement and the Statement of Cash...

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