Question

This fact pattern provides information needed to answer Q#10 through Q#16. On August 1, Year 1, Hoppy Company agreed to provide consulting service to a large client over a 24-month period. It was agreed that these services would be provided in equal monthly amounts starting on August 1, Year 1. These services were provided as agreed. The aggregate value of all services under this contract was $480,000. In Year 1, Hoppy received $110,000 from this large client. Also in Year 1, Hoppy contracted with a smaller client to provide $24,000 in consulting services during each month for 30 months starting on November 1, Year 1. These services were provided as agreed. The smaller client advanced (paid) Hoppy $30,000 when the contract was signed on November 1, Year 1. In Year 2, both clients received services as required by their contracts. The large client paid Hoppy $300,000 cash in Year 2. The smaller client paid Hoppy $230,000 in Year 2. Click Save and Submit to save and submit. Click Save All Answers to save all answers. Save All Answ hulu W Da 200

10

use first two photos to answer #10 please

my bad. calculate consulting revenues in year 1 please. thank you

Answer 1

The base of the question is not very clear, and somehow its incomple.

There are two assumptions

1. assumed year 1 and year 2 are meant to be contract-of-service years.

based on that

we can calculate revenue on accrual  basis:

large client: 240000

( 480000/2)

(contract was for 24 months

so for 12 months:)

smaller client:   288000

(24000*12)

(i.e 24000 per month)

revenue for year 1   528000

though on cash basis Hoppy company recieved 140000 ( i.e. 110000 fron the large client and 30000 from the small client) but we calculate revenue on accrual basis.

2. assumed financial year april to march.

in that scenerio financial year 1 starts from April (of year 1) and ends on march (of year 2)

calculation of revenue generated:

large client 160000

( total contract 480000, so for the

first 8 months revenue, i.e from august to march, accrued:

480000/24 *8)

smaller client 120000

( contract terms says 24000 for 30 months

so 24000 for first 5 months is:

24000*5)

revenue for the financial year 280000

Though on cash basis the revenue generated is 140000, but we calculate revenue in accrual basis.

note:

accrual basis: where revenue or expenses are recorded when a transaction occurs, rather than when payment is received or made.

cash basis: where revenues and expenses are recorded at the time cash is received or paid out.