Topic04 Questions - AF3110 Intermediate Accounting 1...

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1 AF3110 Intermediate Accounting 1 2009/10 Semester 2 Topic 4 Question 1 (Chapter 8 Q7) Jenson has entered into the following transactions / agreement in the year to 31 March 20X4: (i) Goods, which had a cost of $20,000, were sold to Wholesaler for $35,000 on 1 June 20X3. Jenson has an option to repurchase the goods from Wholesaler at any time within the next two years. The repurchase price will be $35,000 plus interest charged at 12% per annum from the date of repurchase. It is expected that Jenson will repurchase the goods. (ii) Jenson owns the rights to fast food franchise. On 1 April 20X3, it sold the right to open a new outlet to Mr. Cody. The franchise is for five years. Jenson received an initial fee of $50,000 for the first year and will receive $5,000 per annum thereafter. Jenson has continuing service obligations on its franchise for advertising and product development that amount to approximately $8,000 per annum per franchise outlet. A reasonable profit margin on the provision of the continuing services is deemed to be 20% of revenues received. (iii) On 1 September 20X3, Jenson received total subscriptions in advance of $240,000. The subscriptions are for 24 monthly publications of a magazine produced by Jenson. At the year end, Jenson had produced and dispatched six of the 24 publications. The total cost of producing the magazine is estimated at $192,000 with each publication costing a broadly similar amount. Required: Describe how Jenson should treat each of the above transactions / arrangements in its financial statements in the year to 31 March 20X4.
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2 Question 2 (Chapter 8 Q9) E-magazine is a new monthly web-based magazine that has been on the
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This note was uploaded on 10/20/2010 for the course AD abc123 taught by Professor Cat during the Summer '09 term at City University of Hong Kong.

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Topic04 Questions - AF3110 Intermediate Accounting 1...

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