Ch5 - Chapter 5 The Income Statement E 5-1 Identifying...

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Chapter 5 The Income Statement E 5-1 Identifying Income Statement Items a. Not recorded in the income statement; a balance sheet transaction. Interest ignored. b. Not recorded in the income statement; a direct deduction from retained earnings. c. Not recorded in the income statement in March; recorded in February. d. Recorded in the income statement as revenue, $7,500. e. Recorded in the income statement as revenue, $5,000. f. Recorded in the income statement as expenses, $75. g. Not recorded in the income statement in March; recorded in February. E 5-2 Income Statement Classification 1. a 6. e 11. d 2. e 7. c 12. c 3. e 8. c 13. d 4. d 9. d 14. c 5. e 10. c 15. e E 5-13 Revenue Recognition a. The services are to be provided evenly throughout the contract period, so Tolkien Consulting can recognize the revenue, month by month, as the contract period elapses. This assumes, of course, that the $12,000 contract amount is collectible from Ironcrown. Revenue for 2005 should be $11,000 ($12,000 × 11/12). b. Charlie has received the cash but has not yet provided the rental services. Thus, no revenue should be recognized in 2005. c. This is a difficult one. In this case, Concepts, Inc. is being allowed to pay off a $20,000 obligation with just $17,500 in cash. One way to view this is that this action will provide Concepts with a $2,500 economic gain. This gain should be recognized as soon as the actual payment of cash occurs. Alternatively, the $2,500 reduction can be viewed as a reduction in the original purchase price of the item purchased on account. d.
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This note was uploaded on 04/11/2009 for the course ACCT 410x taught by Professor Bonner during the Fall '06 term at USC.

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Ch5 - Chapter 5 The Income Statement E 5-1 Identifying...

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