ACCT303 Chapter 2 Homework Solutions[1]

ACCT303 Chapter 2 Homework Solutions[1] - E2-1 Determining...

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1 E2-1. Determining accrual and cash basis revenue (AICPA adapted) Since the subscription begins with the first issue of 2012, no revenue can be recognized in 2011 on an accrual basis. No product or service has been exchanged between Gee Company and its customers. Therefore, no subscription revenue has been earned. On a cash basis, Gee would recognize the full amount of cash received of $36,000 as revenue in 2011. E2-2. Determining unearned subscription revenue (AICPA adapted) Since subscription revenue is not earned until the customer has received the jellies, unearned subscription revenue should be equal to the amount of subscriptions sold but not yet expired. Sold in 2011/Expiring in 2012 $250,000 Sold in 2011/Expiring in 2013 180,000 Sold in 2010*/Expiring in 2012 85,000 Unearned subscription revenue $515,000 *(The subscriptions sold in 2010 that did not expire in 2010 or in 2011 must be carried over to 2012 where they will be earned and recognized.) E2-4. Determining when to recognize revenue (AICPA adapted) Generally, sales revenue is recognized at the date of delivery, because that generally is the time at which a sale (title has passed) has occurred. At that point the two criteria for revenue recognition were met; the revenue is (1) realized or realizable and (2) it is earned. Therefore, the amount of sales revenue recognized in 2011 is $600,000 (200,000 gallons x $3 = $600,000).
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2 E2-16. Income statement presentation Event 1 is a discontinued operation and would appear on the income statement below income from continuing operations. To qualify for discontinued operation treatment, the sold component must be separable, both operationally and financially, from the rest of the operation. Further, Krewatch cannot have any significant continuing involvement in the operations of the sold component. These conditions appear to be met. Although Krewatch is still carrying the accessory line, the company is buying these products from the plant’s new owners and is not involved in the plant’s operations. Event 2 would be reported as a special, nonrecurring or
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ACCT303 Chapter 2 Homework Solutions[1] - E2-1 Determining...

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