Question

ii ain Menu E3-18A (similar to) Question Help ssignments During 2018, Evensen Network, Inc., which designs network servers, earned revenues of $900 million. Expenses totaled $510 million. Evensen collected all but $22 million of the revenues and paid $550 million on its expenses. o Homework Read the requirements. ake a Quiz/Test Requirement a. Under accrual accounting, what amount of revenue should Evensen report for 2018? How does the revenue principle help to answer this question? The amount of revenue that should be reported for the year is $ million.

Answer 1

Solution:

Requirement A:

Amount of revenue to be reported by Evensen Network Inc. is $ 900 millions, because as per accrual accounting we will recognize the revenue as and when we performed the services to customer irrespective of whether we received cash or not in the same year.

As per Revenue Principal, revenue will be recorded when it is earned irrespective of associated cash is actually received.So, in this question we recognize the entire $ 900 millions irrespective of whether we received remaining $22 millions.

Requirement B:

Amount of expense to be reported by Evensen Network Inc. is $510 millions, because as per accrual accounting we will recognize only those expenses in relating to which we receive services. Advance for next year and outstanding balance of previous year paid will not be considered.

We have used Matching Principal to answer. As per matching principal, expenses of particular year will be recognized in that year itself.

Requirement C: On Cash Basis

1)Amount of revenue to be reported by Evensen Network Inc. is $ 878 millions. (900 millions - 22 millions)

2)Amount of expense to be reported by Evensen Network Inc. is $550 millions.

The main differences between both the system is as follows

i) Under cash basis, revenue or expense will be recognized when it is actually received or paid.

ii) Under accrual basis, revenue or expense will be recognized when it is performed.

Requirement D:

1) Income Statement is used to report the revenues and expenses

2) Cash Flow Statement is used to report the cash receipts and payments.