Lesson%205%20Solutions

Lesson%205%20Solutions - Suggested Solutions for ACCT 351...

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Suggested Solutions for ACCT 351 Adapted from Beechy, T. H., & Conrod, J. E. D. (2005). Solutions manual to accompany intermediate accounting, volume 1 (3 rd Can. ed.). Toronto: McGraw-Hill Ryerson. Reproduced with permission. Page 1 of 15 Lesson 5, Chapter 6 Assignment 6-1 (text, p. 320) a) Interest revenue is recognized as time passes according to amount earned. b) Interest revenue is recognized as time passes according to amount earned. c) Revenue would be recognized on a cost recovery basis, where payments received would be considered repayment of principal until the entire principal is recovered, with any additional payments received being recognized as interest revenue. d) Revenue recognition would be deferred until the service of transporting the passenger is completed. e) Revenue would be recognized as soon as the transporting of the freight is completed (delivery). f) Revenue can be recognized only when the trees are sold (delivery). g) Revenue will be recognized as the completed houses are sold and delivered to a customer. Completed houses are included in inventory at cost. h) Revenue could and likely would be recognized on a percentage-of-completion basis, without regard to when payment is received or when the completed houses are delivered to the purchaser. i) Either the instalment sales method or the cost recovery method would be used to recognize revenue. In this case the more usual treatment is the instalment sales method. j) Revenue would be recognized as it is earned, which in this case will be with the passage of time. The large initial payment will be accounted for as deferred revenue. k) Because it is not possible to reliably determine the costs for completing this project, the completed-contract method of revenue recognition would be used. l) It would be permissible to use the production method and recognize revenue as the silver is produced, since this is a commodity that is traded daily at known prices. Subsequent increases and decreases in market value would be recognized as gains and losses.
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Suggested Solutions for ACCT 351 Page 2 of 15 Assignment 6-8 (text, pp.322–323) Requirement 1 The most appropriate point at which to recognize revenue is likely at the time the option is exercised (early 20X6) for the following reasons. 1. The product is complete and essentially all the work is also complete (i.e., $5.22 million in costs incurred out of a total of $5.94 million). 2. The remaining costs of $720,000 for testing likely could be estimated. 3. Collection of the selling price is reasonably assured. 4. The selling effort is complete. 5. The amount of revenue is measurable. Delivery can also be justified, although it is overly conservative, given the above points.
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Suggested Solutions for ACCT 351 Page 3 of 15 Assignment 6-8 continued Requirement 2 The research costs of $2.34 million incurred in 20X4 must be charged to expense in 20X4; there is no reason to believe that a commercially saleable product has been created in 20X4. CICA rules require that research be expensed for this reason. 20X5 expenditures
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Lesson%205%20Solutions - Suggested Solutions for ACCT 351...

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