Section A - Quiz No. 2 Sol

Section A - Quiz No. 2 Sol - ADM 2340 A Quiz No. 2...

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ADM 2340 A Quiz No. 2 Financial Accounting - Fall 2006 (Solutions) Question No. 1 (4 marks) On August 1, 2005, Davidson Company sold merchandise for $7,200 to a customer. The customer paid $2,200 as a down payment and signed a 6% six-month note for the balance to be paid at maturity. Davidson’s accounting year ends October 31. Required: (narrative explanations are not required) (a) Prepare the general journal entry on Davidson’s books to record the sale. (b) Prepare any necessary adjusting entry on Davidson’s books on October 31. Answer : (a) Journal entry on date of sale (August 1) is: Cash. ............................................................................................ 2,200 Note Receivable. .......................................................................... 5,000 Sales Revenue. .................................................................. 7,200 (b) Total interest accrued on October 31 is: $5,000 x 6% x 3/12 = $75 Interest Receivable. ...................................................................... 75 Interest Revenue. .............................................................. 75 Question No. 2 (3 marks) Required: What are the three criteria for revenue recognition? Be concise and clear in your answer. Answer : 11. The revenue has been earned. For the revenue to be considered earned, performance must be complete (in other words, all the risks and rewards of the goods/services have been transferred from the seller to the buyer).
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This note was uploaded on 09/13/2011 for the course ADM 2340 taught by Professor Perper during the Fall '07 term at University of Ottawa.

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Section A - Quiz No. 2 Sol - ADM 2340 A Quiz No. 2...

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