Fall_2009_Exam_1_Q123_Solutions - ACCT301 Fall2009 EXAM1...

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ACCT 301 Fall 2009 EXAM 1 NAME:_________________________________________ QUESTION 1 Each of the following should be answered in  grammatically correct, complete sentences . A. What is the definition of an “asset?” An asset is a probable future benefit obtained or controlled by an economic entity as a result of a  past transaction or event . B. When should revenue be recognized? Revenue should be recognized when it is (1) earned and (2) realized or realizable. QUESTION 2 Each of the following represents a decision made by Craun, Inc. in 2009. Tell whether you  agree or disagree with the decision and explain your answer using accounting concepts and principles. A. In December, 2009, Craun, Inc. sold 400,000 boxes of breakfast cereal. In each box, there is a coupon.  The coupon plus $.75 can be redeemed by the customer for a toy. Each toy costs the company $.35.  During December, 100,000 coupons were redeemed and Craun, Inc. made the following entry: Cash $75,000 Toy Inventory $35,000 Gain on Promotion $40,000 It depends. If this meets the definition of a gain, an increase in net assets due to peripheral or  incidental transactions or events, then the entry is correct. If, however, the promotion is actually  intended to generate income by itself, then it can represent the company’s major, ongoing  operations and sales revenue and cost of goods sold should be recognized
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This note was uploaded on 09/20/2011 for the course ACCT 301 taught by Professor Staff during the Spring '11 term at S.F. State.

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Fall_2009_Exam_1_Q123_Solutions - ACCT301 Fall2009 EXAM1...

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