Question

Revenues are normally recognized when the company transfers promised goods or services in the amount the company expects to be entitled to receive. The amount recorded is the cash-equivalent sales price. Assume that the following transactions occurred in September: a. A popular ski magazine company receives a total of $11,645 today from subscribers. The subscriptions begin in the next fiscal year. Answer from the magazine company's standpoint. b. On September 1 of the current year, a bank lends $2,600 to a company; the note principal and $312 ($2,600 x 12 percent) annual interest are due in one year. Answer from the bank's standpoint. c. Fucillo Automotive Group (offering a wide variety of car and truck brands) sells a Ford F-150 truck with a list, or "sticker," price of $20,850 for $18,850 cash. d. Macy's department store orders 1,100 men's shirts for $21 each for future delivery from PVH Corp., manufacturer of IZOD, ARROW, Van Heusen, Calvin Klein, and Tommy Hilfiger and other brand-name apparel. The terms require payment in full within 30 days of delivery. Answer from PVH Corp.'s standpoint. e. PVH Corp. completes production of the shirts described in (d) and delivers the order. Answer from PVH's standpoint. f. PVH Corp. receives payment from Macy's for the events described in (d) and (e). Answer from PVH's standpoint. g. A customer purchases a ticket from American Airlines for $640 cash to travel the following January. Answer from American Airlines's standpoint. h. Ford Motor Company issues $21.9 million in new common stock. i. Michigan State University receives $18,930,000 cash for 74,000 seven-game season football tickets to be played in the upcoming season. j. Michigan State plays the first football game referred to in (). k. Precision Builders signs a contract with a customer for the construction of a new $1,550,000 warehouse. At the signing, Precision receives a check for $197,000 as a deposit on the future construction. Answer from Precision's standpoint. I. Best Buy receives inventory of 14 laptop computers from Dell; Best Buy promises to pay $10,600 within three months. Answer from Dell's standpoint. m. Amazon.com delivers a $210 lamp to a customer who charges the purchase on his Amazon.com Store Card. Answer from Amazon's standpoint. Required: For each of the transactions, if revenue is to be recognized in September, indicate the revenue account title and amount. (If revenue is not recognized choose "None".) Revenue Account Affected Amount of Revenue Earned in September a. b. d. e. f. g. h.

Answer 1

Solution:

Revenue Account Affected Amount of Revenue Earned in September Reason a. None $0 b. Interest Revenue $26 C. Sales Revenue $18,850 d. None $0 This is unearned revenue as subscription begin in the next fiscal year. Only one month interest revenue is earned which is calculated as ($312/ 12 = $26) Sales are always recorded at cash-equivalent sales price not at list price. Only order is received in September. No physical transfer of goods takes place. Now sales revenue will be recorded at 1,100 Shirts * $ 21 = $23,100 The revenue is already recorded in previous transaction This is unearned revenue as service will be provided in the following January Issue of common stock is not a sales revenue. e. Sales Revenue $23,100 f. None $0 8 None $0 h. None $0 None $0 j. Sales Revenue $27,04,286 k. None $0 This is unearned revenue as game will be played in the upcoming season. The revenue is recognized as $18,930,000/ 7 games = $2,704,286 This is unearned revenue as advance is received for future construction. This is sales revenue. Dell sold 14 laptops to Best Buy on credit. This is Sales Revenue. Amazon delivers lamps to costomer via online transaction. I. Sales Revenue $10,600 m. Sales Revenue $210