Solution Case 1

Solution Case 1 - Solution Case 1 Part I Memorandum To:...

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Solution Case 1 Part I Memorandum To: Eric Conner and Phil Martin, CM 2 From: L. Harbach Re: Unearned Revenue and Contingencies Date: January 24, 2010 Here are the answers to your questions for the year ended December 31, 2010 : (a) The balance in the unearned revenue account should be equal to: Service Contract 1 $ 21,000 (3 months X $7,000) Service Contract 2 62,500 (10 months X $6,250) Service Contract 3 82,500 (11 months X $7,500) Total: $166,000 (b) Service Revenue 61,000 Unearned Revenue 61,000 The above journal entry is necessary to correct the unearned revenue liability account. The balance sheet should report obligations for any commitments that are redeemable in goods/services. The income statement should report revenues earned during the period. The above journal entry corrects the balance in the Unearned Revenue account to make sure that the company reports the actual obligation of CM 2 to its customers at the end of 2010. Part II Memorandum To: Eric Conner and Phil Martin, CM 2 From: L. Harbach Re: Pending Lawsuit and the F/S Impacts Date: January 24, 2010 IAS 37 is the standard that offers guidance on such issues. Under IAS 37, a liability for legal damages would be recorded in the accounts if the following two criteria are met: (1) The chance of CM 2 being required to settle the liability (i.e. the chance they
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This note was uploaded on 01/01/2012 for the course ACCT 531 taught by Professor Janicecharko during the Winter '11 term at Humber.

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Solution Case 1 - Solution Case 1 Part I Memorandum To:...

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