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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