Question

Question 1

For a firm to recognize revenue, it must

1 point

Have delivered something to the customer

have received at least some cash from the customer

be earned and realized/realizable

either have received cash or have a signed contract

2.

Question 2

Your friend Yong has a company making and selling watches with bands that are customized to match university colors. The business started locally, but now has expanded around the world. His strategy is to sell in bulk to small retailers or to alumni clubs in various cities. His banker has just told him he needs to create a revenue recognition policy and suggested he begin by considering a few transactions from today.

Yong tells you that today he delivered $1,000 worth of watches to a University bookstore that has been a long time client. They will pay him in a week.

He also received two big orders, one for $700 worth of watches to an established customer and another for $4,000 to a brand new customer in another country where he has never done business. The new customer sent payment in advance. Yong will be able to ship both orders out in the next week. He just needs to finish making a couple of watches for the established customers. He already has all the watches made for the new customer, but wants to inspect them one more time and has to figure out how to ship to that country.

How much revenue should Yong recognize at the end of the day?

(Note - for all questions asking for numerical answers, write the number only, no dollar sign ($))

4 points

3.

Question 3

Yong decided it would be helpful to discuss a couple of other transactions. On a recent trip to Paris, Yong met a street vendor who wanted to sell watches with the colors of various French futball teams. She paid Yong $3,000 in advance for the watches and promised him another $1,000 after she sells them. He did agree to take them back within two months if she found she could not sell them. This is a brand new market for him, so he is willing to take the risk in the hopes it will pay off. Yong shipped her all the watches three days ago. How much revenue should he record?

2 points

4.

Question 4

At the end of Yong's first year of business, he had been owed $70,000 and believed he would collect all but $3,000 of it. It is now the end of his second year of business. He is owed $90,000. Of that amount, $2,000 is from a customer who has told Yong the watches were stolen and they are not sure if they can pay. They are waiting to find out if their insurance will cover it. Yong does not know of any other specific amounts, but said that he expanded into a bunch of new markets, so he is worried that about $5,000 more may not pay.

What amounts should he show on his balance sheet for receivables and on his income statement as an expense for his second year financial statements?

2 points

Balance sheet: $90,000

Income statement: $4,000

Balance sheet: $83,000

Income statement: $7,000

Balance sheet: $83,000

Income statement: $4,000

Balance sheet: $90,000

Income statement: $7,000

5.

Question 5

Crows Satellite Company has just published their financial statements for the current year. The face of the balance sheet shows accounts receivable of $8,000,000. There is also a note that says the company has an allowance for doubtful accounts of $100,000. How much do customers actually owe Crows?

2 points

6.

Question 6

Your friend Pablo owns company called "Essential Eats" (EE for short). EE makes baked goods using a free community kitchen. Pablo sells them at a local weekly sport park meet up. The sports park provides plates, napkins etc. This is a pretty good deal for Pablo as he only pays for the ingredients he uses to do the baking and a little bit of advertising.He said if he had to pay for the kitchen it would cost another $150 and the supplies like plates and napkins would add another $100.He sold $1,400 worth of baked goods this week. The ingredients cost him $500 and his advertising was $100.

How much should Pablo show as cost of goods sold expense on his financial statements?

2 points

7.

Question 7

Your friend Faith has been comparing financial statements for companies that produce and sell soda. She noticed that both of them classify shipping costs between factories and warehouses as part of cost of goods sold. However, company A classifies shipping to customers as cost of goods sold and company B treats the same costs as selling, general and administrative. She is confused about why shipping costs would be treated differently within a firm or across firms. She is trying to figure out who is correct. From the following options, which is most likely?

1 point

A is correct.

Neither is correct.

B is correct.

Both are correct.

8.

Question 8

Pischke inc. is a whole seller of paper products. They began the year with 100 bundles of paper during the year which cost $10 each. They purchased $8,000 of inventory during the year, with the cost increasing to $20 per bundle. When they counted at the end, they found they had 200 bundles left. What would cost of goods sold be if they employed the FIFO (First-In, First-Out) method of inventory costing?

2 points

9.

Question 9

Mozart inc. sells strings for pianos and other instruments. They have to provide product to customers quickly, so they always have a lot of inventory in their warehouse, including at year end. Their products used to be very costly, but due to new manufacturing technology, the costs of strings has decreased each of the last three years. Mozart inc. uses LIFO costing assumptions. Relative to FIFO, the LIFO costs over the last three years have been:

1 point

the same

More information is needed

Higher

Lower

10.

Question 10

Delroy works in the warehouse for a chair manufacturing company. He knows that when new chairs are made, they are put in the front of the storage area for their chair type. When orders are placed, the warehouse staff takes as many chairs as they need from the storage area, beginning with the chairs in the front. Delroy was just reading the firm's financial statements and they say they use FIFO accounting. He has gone to the CEO of the company to say that Dahila, the chief accountant should be fired. She clearly is not reflecting what is going on in the firm. Delroy is concerned this means she is either not a very good accountant or committing fraud. The CEO should:

1 point

Investigate further to see if everyone in the warehouse manages inventory like Delroy. If so, then Dahila should be fired.

Fire Dahila immediately

Send Delroy back to the warehouse after suggesting he take this MOOC

Answer 1

Answer.1. Revenue is consideration earned in exchange of products sold/services rendered. In accounting, revenue is recognized when the goods have been sold or services performed. Until then, it is considered advance revenue receipts even if cash is received. Also, if goods have been sold/services rendered but payment is not yet received, revenue is still recognized with amount due recorded as accounts receivable.

So, the correct option is “For a firm to recognize revenue, it must be earned and realized/realizable”, ‘earned’ means products/services delivered and ‘realized’ means advance or cash payment and ‘ realizable’ means amount due.

Note: As per answering guidelines, in case of multiple questions, the first question to be answered completely. Request you to kindly post the remaining questions each separately.