Homework Chapter 5 Day 1 - Day 1 Homework Chapter 5...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Day 1 Homework Chapter 5 Homework Chapter 5 Day 1 Question 5-1 The realization principle requires that two criteria be satisfied before revenue can be recognized: 1. The earnings process is judged to be complete or virtually complete. 2. There is reasonable certainty as to the collectibility of the asset to be received (usually cash). Question 5-3 If the installment sale creates a situation where there is significant uncertainty concerning cash collection and it is not possible to make an accurate assessment of future bad debts, revenue and cost recognition should be delayed beyond the point of delivery. Question 5-7 Sometimes a company arranges for another company to sell its product under consignment. The consignor physically transfers the goods to the other company (the consignee), but the consignor retains legal title. If the consignee cant find a buyer within an agreed-upon time, the consignee returns the goods to the consignor. However, if a buyer is found, the consignee remits the selling price (less commission and approved expenses) to the consignor. Because the consignor retains the risks and rewards of ownership of the product and title does not pass to the consignee, the consignor does not record revenue (and related costs) until the consignee sells the goods and title passes to the eventual customer. Brief Exercise 5-5 The seller must meet certain criteria before revenue can be recognized in situations when the right of return exists. The most critical of these criteria is that the seller must be able to make reliable estimates of future returns. If Meyers management can make reliable estimates of the furniture that will be returned, revenue can be recognized when the product is delivered, assuming the company has no additional obligations to the buyer. If reliable estimates cannot be made because of significant uncertainty, revenue and related cost recognition is delayed until the uncertainty is resolved. 1 Exercise 5-1 Requirement 1 Alpine West should recognize revenue over the ski season on an anticipated usage basis, in this case equally throughout the season. The fact that the $450 price is nonrefundable is not relevant to the revenue recognition decision. Revenue should be recognized as it is earned, in this case as the services are provided during the ski season. Requirement 2 November 6, 2009 To record the cash collection Cash............................................................................ 450 .......................................................Unearned revenue ..............................................................................450 December 31, 2009 To recognize revenue earned in December (no revenue earned in November, as season starts on December 1)....
View Full Document

This note was uploaded on 04/06/2010 for the course ACT 302 taught by Professor Ivan during the Spring '10 term at University of North Carolina Wilmington.

Page1 / 11

Homework Chapter 5 Day 1 - Day 1 Homework Chapter 5...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online