Question

23. Which of the following items creates complications related to revenue recognition? A) Bonuses tied to sales goals B) Nonrefundable up-front fees C) Variable consideration D) Consignment goods E) All of the above 24. Costco Wholesale Corporation collects annual non-refundable membership fees from customers When should Costco recognize revenue for these membership fees? A) Immediately when cash is received because the fees are nonrefundable B) Evenly over the membership year C) Evenly over the current fiscal year D) At the end of the membership year when Costco has discharged its obligation to the customer E) Pro rata over the customer's actual purchasing pattern 25. The 2016 income statements of Leggett & Platt, Inc. reports net sales of S3,749.9 million. The balance sheet reports accounts receivable, net of $486.6 million at December 31, 2016 and S520.2 million a December 31, 2015 The days sales outstanding in 2016 was: A) 49 days B) 10 days C) 44 days D) 8 days E) None of the above

Answer 1

Solution 23:

"All of the items Bonuses tied to sales goals, Non refundable upfront Fee, Variable considerations and Consignment goods" creates complications related to revenue recognition.

Hence option "E" is correct.

Solution 24:

Costco should record revenue for non refundable membership fees evenly over the membership year.

Hence, option "B" is correct.

Solution 25:

Average Accounts Receivable = (486.6 + 520.2) / 2 = $503.4 Millions

Days Sales outstanding = (365 / Net sales) * average accounts receivable = (365 / $3749.9 millions) * $503.4 Millions

= 49 days

Hence option "A" is correct.