Moretti Department Store sells gift cards that expire three years from the date of
purchase. During 2014, Moretti sold $50,000 of gift cards, of which $1,500 were
redeemed during 2016. At the end of 2016, it is estimated that approximately $800 of
the 2014 balance remains unused, and Moretti concludes that it will never be redeemed.
Moretti sold another $55,000 of gift cards in 2015, of which $22,000 were redeemed in
2016, and $60,000 of gift cards in 2016, of which $40,000 were redeemed in 2016.
Required: How much revenue with respect to gift cards should Moretti recognize in
2016?
Hillsdale is considering two options for comparable computer software. Option A will
cost $25,000 plus annual license renewals of $1,000 for three years, which includes
technical support. Option B will cost $20,000 with technical support being an add-on
charge. The estimated cost of technical support is $4,000 the first year, $3,000 the
second year, and $2,000 the third year. Assume the software is purchased and paid for at
the beginning of year one, but that technical support is paid for at the end of each year.
Interest is at 8%. Ignore income taxes.
Required: Determine which option should be chosen based on present value
considerations.
Which of the following is not one of the five steps for recognizing revenue?
e. Recognize revenue when (or as) each performance obligation is satisfied.
f. Determine the transaction price.
g. Allocate the transaction price to each performance obligation.
h. Estimate variable consideration.
Novelli’s Nursery has developed the following data for lower of cost and net realizable
valuation for its products:
The costs to sell are 10% of selling price. Required: Determine the reported inventory
value assuming the lower of cost and net realizable value rule is applied to classes of
trees.
Bank loans are often arranged in advance as lines of credit. What is a line of credit?
How do a committed and a noncommitted line of credit differ?
Fragrance International, a large perfume manufacturer, reported the following in its
2016 annual report to shareholders: ACCUMULATED OTHER COMPREHENSIVE
INCOME The components of accumulated other comprehensive income (loss)
(“AOCI”) included in the accompanying consolidated balance sheets consist of the
following:
CONSOLIDATED STATEMENTS OF CASH FLOWS
Investments sold during 2016 originally cost $3.0 million. Prepare journal entries that
Fragrance International recorded at June 30, 2016, to (1) record any necessary changes
to the fair value adjustment for available-for-sale securities and (2) record any tax
effects associated with those changes.