ch 7 homework solutions

# ch 7 homework solutions - EXERCISE 7-4 (15- 20 minutes) (a)...

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EXERCISE 7-4 (15--20 minutes) (a) 2008----- \$1,600,000 \$480,000 X \$2,200,000 = \$660,000 2009----- \$2,200,000 (contract price) minus \$660,000 (revenue recognized in 2008) = \$1,540,000 (revenue recognized in 2009). (b) All \$2,200,000 of the contract price is recognized as revenue in 2009. EXERCISE 7-7 (15--20 minutes) Computation of gross profit recognized: 2008 2009 \$370,000 X 30%* \$350,000 X 30% \$475,000 X 32%** \$111,000 \$111,000 \$105,000 152,000 \$257,000 * *(\$900,000 -- \$630,000) ÷ \$900,000 **(\$1,000,000 -- \$680,000) ÷ \$1,000,000

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AIA 7-10 (a) Receipts based on subscriptions should be credited to unearned revenue. As each monthly edition is distributed, the unearned revenue is reduced (Dr.) and earned revenue is recognized (Cr.). A problem results because of the unqualified guarantee for a full refund. Certain companies experience such a high rate of returns to sales that they find it necessary to postpone revenue recognition until the return privilege has substantially expired. Cutting Edge is expecting a 25% return rate and it will not expire until the new subscriptions expire. The FASB has stated in FASB Statement No. 48, ‘‘Revenue Recognition When Right to Return Exists,’’ that transactions
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## ch 7 homework solutions - EXERCISE 7-4 (15- 20 minutes) (a)...

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