Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN: 9781305654174
Author: Gary A. Porter, Curtis L. Norton
Publisher: Cengage Learning
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Textbook Question
Chapter 4, Problem 4.35MCE
Revenue Recognition, Cash and Accrual Bases
Hathaway Health Club sold three-year memberships at a reduced rate during its opening promotion. It sold 1,000 three-year nonrefundable memberships for $366 each. The club expects to sell 100 additional three-year memberships for $900 each over each of the next two years. Membership fees are paid when clients sign up. The club’s bookkeeper has prepared the following income statement for the first year of business and
Cash-basis income statements:
Required
- Convert the income statements for each of the three years to the accrual basis.
- Describe how the revenue recognition principle applies. Do you believe that the cash-basis or the accrual-basis income statements are more useful to management? to investors? Why?
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Revenue Recognition Policy Decisions. For each of these situations, describe the revenue recognition policy that you believe that the company should follow.
An international health club sells lifetime memberships costing $1,500 which allow the purchaser unlim-ited use of any of the club’s 300 facilities around the world. The initiation fee may be paid in 36 monthly installments, with a two percent interest charge on any unpaid balance.
Franklin Motors, Inc., has always offered a limited, 36-month warranty on its cars and trucks, but to counter the significant competition in the industry, the company has come to the conclusion that it must do something more. With that in mind, the company developed a new warranty program: For a $1,500 payment at the time of purchase, a customer can buy a seven-year warranty that will cover replacement of almost all parts and labor. The purchased warranty expires at the end of seven years or when the customer sells the vehicle, whichever occurs first.…
Revenue Recognition, Cash and Accrual Bases
Hathaway Health Club sold three-year memberships at a reduced rate during its opening promotion. It sold 1,000 three-year nonrefundable memberships for $357 each. The club expects to sell 100 additional three-year memberships for $900 each over each of the next two years. Membership fees are paid when clients sign up. The club's bookkeeper has prepared the following income statement for the first year of business and projected income statements for Years 2 and 3.Cash-basis income statement:
Year 1
Year 2
Year 3
Sales
$357,000
$90,000
$90,000
Equipment*
$102,000
$0
$0
Salaries and wages
49,310
49,310
49,310
Advertising
5,160
5,160
5,160
Rent and utilities
34,380
34,380
34,380
Net income (loss)
$166,150
$1,150
$1,150
*Equipment was purchased at the beginning of year 1 for $102,000 and is expected to last for three years and then to be worth $1,020.
Required:
Convert the income statements for each of the three years to…
Please answer in good accounting form. Thankyou
SAPPHIRE CO. charges new franchisees an initial fee of P5,000,000. Of this amount, P2,000,000 is payable in cash when the agreement is signed, and the remainder is to be paid in three equal annual installments which are evidenced by an interest-bearing promissory note. In consideration therefore, SAPPHIRE CO. will assist in locating the business site, conduct a market study to estimate earnings potential, supervise construction of a building, and provide initial training to employees.
On December 3, 2021, Sapphire Co. entered into a franchising agreement with EMERALD, INC. by the end of the year, SAPPHIRE CO. has completed about 25% of the initial services at a cost of P300,000 and it has ascertained that collection of the notes is reasonably assured.
For 2021, SAPPHIRE CO. should recognized franchise revenue of:A. 5,000,000 C. 1,700,000B. 2,000,000
Chapter 4 Solutions
Financial Accounting: The Impact on Decision Makers
Ch. 4 - Read each definition below and write the number of...Ch. 4 - Prob. 4.1ECh. 4 - Comparing the Income Statement and the Statement...Ch. 4 - Prob. 4.3ECh. 4 - Accruals and Deferrals For the following...Ch. 4 - Office Supplies Somerville Corp. purchases office...Ch. 4 - Prepaid Rent—Quarterly Adjustments On September...Ch. 4 - Prob. 4.7ECh. 4 - Depreciation On July 1, 2016, Dexter Corp. buys a...Ch. 4 - Working Backward: Depreciation Polk Corp....
Ch. 4 - Prob. 4.10ECh. 4 - Subscriptions Horse Country Living publishes a...Ch. 4 - Customer Deposits Wolfe $ Wolfe collected $9,000...Ch. 4 - Concert Tickets Sold in Advance Rock N Roll...Ch. 4 - Prob. 4.14ECh. 4 - Wages Payable Denton Corporation employs 50...Ch. 4 - Prob. 4.16ECh. 4 - Prob. 4.17ECh. 4 - Interest Payable—Quarterly Adjustments Glendive...Ch. 4 - Prob. 4.19ECh. 4 - Interest Receivable On June 1, 2016, MicroTel...Ch. 4 - Rent Receivable Hudson Corp. has extra space in...Ch. 4 - Working Backward: Rent Receivable Randys Rentals...Ch. 4 - The Effect of Ignoring Adjusting Entries on Net...Ch. 4 - The Effect of Adjusting Entries on the Accounting...Ch. 4 - Reconstruction of Adjusting Entries from...Ch. 4 - The Accounting Cycle The steps in the accounting...Ch. 4 - Trial Balance The following account titles,...Ch. 4 - Prob. 4.28ECh. 4 - Preparation of a Statement of Retained Earnings...Ch. 4 - Reconstruction of Closing Entries The following T...Ch. 4 - Closing Entries for Nordstrom The following...Ch. 4 - Prob. 4.32ECh. 4 - Prob. 4.33ECh. 4 - Prob. 4.34ECh. 4 - Revenue Recognition, Cash and Accrual Bases...Ch. 4 - Depreciation Expense During 2016, Carter Company...Ch. 4 - Prob. 4.37MCECh. 4 - Adjusting Entries Kretz Corporation prepares...Ch. 4 - Prob. 4.2PCh. 4 - Prob. 4.3PCh. 4 - Recurring and Adjusting Entries Following are...Ch. 4 - Prob. 4.5PCh. 4 - Prob. 4.6PCh. 4 - Prob. 4.7PCh. 4 - Prob. 4.8PCh. 4 - Prob. 4.9PCh. 4 - Prob. 4.10PCh. 4 - Prob. 4.1IPCh. 4 - Prob. 4.2APCh. 4 - Prob. 4.3APCh. 4 - Prob. 4.7APCh. 4 - Prob. 4.9APCh. 4 - Prob. 4.10APCh. 4 - Prob. 4.11MCPCh. 4 - Prob. 4.12MCPCh. 4 - Prob. 4.13MCPCh. 4 - Prob. 4.11AMCPCh. 4 - Prob. 4.12AMCPCh. 4 - Prob. 4.13AMCPCh. 4 - Prob. 4.1APCh. 4 - Prob. 4.4APCh. 4 - Prob. 4.5APCh. 4 - Prob. 4.6APCh. 4 - Prob. 4.8APCh. 4 - Prob. 4.1DCCh. 4 - Prob. 4.2DCCh. 4 - Prob. 4.3DCCh. 4 - Prob. 4.4DCCh. 4 - Depreciation Jensen Inc., a graphic arts studio,...Ch. 4 - Prob. 4.6DCCh. 4 - Prob. 4.7DC
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