Homeworksolution-ch.6

Homeworksolution-ch.6 - EXERCISE 6-1 (15-20 minutes) (a) 1....

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EXERCISE 6-1 (15-20 minutes) (a) 1. Since the sales effort is not complete until the flight actually occurs, revenue should not be recognized until December. 2. If collection can be reasonably assured and an estimate of uncollectible amounts can be made, then revenue can be recognized at the point of sale. Otherwise, the instalment method must be used with gross profit being recognized at the time cash is collected. However, it is highly unlikely that Leon’s would sell to customers with no credit check and that it would not be able to reasonably estimate its doubtful accounts based on past experience. Consequently, the instalment method of accounting is not a likely option. Note No. 1 to the financial statements titled: “Summary of Significant Accounting Policies” for Leon’s does not mention the recognition of sales made on an instalment basis. The only mention of revenue recognition is at point of sale. It is possible that financing arrangements for instalment sales are made in other corporate entities Leon’s deals with. 3. Revenue should be recognized on a per game basis over the season from April to October. 4. Interest revenue should be accrued and recognized by TD Canada Trust evenly over the term of the loan. 5. Once the term starts, tuition can be recognized provided that material expenses can be determined and matched. 6. Revenue should be recorded at the time the sweater is shipped to the customer provided there is reasonable assurance of collectibility.
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EXERCISE 6-1 (Continued) (b) The ticket f ee that is paid upfront should not be recognized as revenue unless the earnings process is substantially complete i.e. Air Canada has earned it by providing the flight. This is the case even if the fees are non-refundable and cannot be used at any other service but the specific flight scheduled on the ticket.
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EXERCISE 6-5 (15-20 minutes) (a) Inventoriable costs: 80 units shipped at cost of $500 each $40,000 Freight 840 Total inventoriable cost $40,840 43 units on hand (43/80 X $40,840) $21,951 (b) Calculation of Consignment Profit: Consignment sales (37 X $700) $25,900 Cost of units sold (37/80 X $40,840) (18,889 ) Commission charged by consignee (6% X $25,900) (1,554 ) Advertising cost (200 ) Installation costs (320 ) Profit on consignment sales $ 4,937 (c) Remittance of Consignee: Consignment sales $25,900 Less: Commissions $1,554 Advertising 200 Installation 320 2,074 Remittance from consignee $23,826
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EXERCISE 6-9 (30-35 minutes) (a) Gross profit recognized in: 2007 2008 2009 Contract price: 2,500,000 2,500,000 2,500,000 Costs: Opening balance of costs 0 1,070,000 1,455,000 Costs incurred during the year 1,070,000 385,000 275,000 Costs incurred to date 1,070,000 1,455,000 1,785,000 Estimated costs to complete 830,000 275,000 0 Total estimated costs 1,900,000 1,730,000 1,785,000 Estimated gross profit 600,000 770,000 715,000 Percentage complete 56.316%* 84.10%** 100% Revenue to date 1,407,900 2,102,500 2,500,000 Less previous revenue 0 (1,407,900)
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This note was uploaded on 10/18/2010 for the course BUS ACC415 taught by Professor Bibijohn during the Spring '09 term at Seneca.

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Homeworksolution-ch.6 - EXERCISE 6-1 (15-20 minutes) (a) 1....

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