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Unformatted text preview: ICP 4-1 a. The full franchise fee of $60,000 can be recognized in 20x5 because the services are rendered. Note that no mention is made of when the franchisors year end is. If this occurs after Sep 15, then all revenues can be recognized. If the year end is say, June 30, then we can only accrue revenues to the extent that they have been earned. b. The full $30,000 can be recognized on delivery as long as collectibility is reasonably assured. c. Revenues should be accrued over the 5 year lease as follows: ($1,000 x 48 months) / 60 = $800 per month Walk through the mechanics of the journal entries. d. A case can be made to record the revenue when extracted. Any subsequent increases in value could also be recorded to revenues (much like we treat available for sale investments). e. i. the $60 should be recognized as revenue as follows: $30 in year 2 and $30 in year 3. ii. the new $30 of revenue is recognized as follows: $15 in year 2 and $15 in year 3. f. Likely record revenues as cash is received, unless collectibility is reasonably assured. g. The whole $35,000 can be recognized. A provision for warranty of $800 need to be taken. ICP 4-2 20x1 % of completion = $2,160 / ($2,160 + 5,040) = $2,160 / 7,200 = 30% Revenues realized = $10,000,000 x 30% = $3,000,000 Profits realized = $10,000,000 - 7,200,000 = $2,800,000 x 30% = $840,000 20x2 % of completion = ($2,160 + 3,000) + (2,160 + 3,000 + 3,440) = $5,160 / 8,600 = 60% Revenues realized = $10,000,000 x 60% = $6,000,000 - 3,000,000 realized to the end of 20x1 = $3,000,000 to be realized in 20x2 Profits realized = $10,000,000 - 8,600,000 = $1,400,000 x 60% = $840,000 -...
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