Problem 5–19
Requirement 1
a. January 30, 2018
Cash ……………………………………………………………………. 200,000
1,200,000
b. September 1, 2018
Deferred franchise fee revenue………………………………… 1,200,000
c. September 30, 2018
d. January 30, 2019
Problem 5–19 (continued)
Requirement 2
a. January 30, 2018
Cash ……………………………………………………………………. 200,000
b. September 1, 2018
Deferred franchise fee revenue………………………………… 200,000
c. September 30, 2018
Service revenue …………………………………………………. 1,200
Problem 5-19 (concluded)
d. January 30, 2019
Cash…………………………………………………………………….. 100,000
Franchise fee revenue ………………………………………… 100,000
Requirement 3
Balance Sheet
At December 31, 2018
Current assets:
Installment notes receivable
Current liabilities:
$ -0-
Explanation: Revenue recognition on the entire note receivable is deferred. In
CASES
Research Case 5–1
(Note: This case requires the student to reference a journal article.)
1.
Abuse Explanation
1. Cutoff manipulation The company either closes their books early (so some
revenue is included in the current year).
2. Deferring too much
The company has an arrangement under which
revenue to shift income into future periods.
delivered the goods to the customer.
due to the nature of the selling relationship.
2. Manipulating estimates of percentage complete in order to manipulate gross
3. These abuses tended to increase income (75% of the time), consistent with
4. The auditors tended to require adjustment (56% of the time), consistent with
Judgment Case 5–2
Determining whether Toys4U satisfies the performance obligation requires the
include, but are not limited to the following:
1. The customer has accepted the asset. There is no acceptance provision
not appear that McDonald’s has irrevocably accepted the dolls.
3. The customer has physical possession of goods. McDonald’s has
possession of the dolls.
4. The customer has the risks and rewards of ownership. Given that
5. The customer has an obligation to pay the seller. In this case, McDonald’s
In this case, Toys4U has not transferred control upon delivery because
essentially a consignment arrangement, and Toys4U should not recognize revenue
until McDonald’s sells dolls to customers.
Judgment Case 5–3
In this case, Kerry obtained the access code for Level I on December 1,
I.
Tom passed the Level I test on December 10 and Kerry purchased access to
until December 20. Cutler should recognize $30 of revenue for Level II on
December 20.
Ethics Case 5–4
Discussion should include these elements.
Facts:
Horizon Corporation, a computer manufacturer, reported profits from 2013
that year.
The CFO is clearly asking Jim Fielding to recognize revenue in 2018 that he
Ethical Dilemma:
Is Jim’s obligation to challenge the memo of the CFO and provide useful
Who is affected?
Jim Fielding
Creditors
Auditors
Judgment Case 5-5
Scenario 1: The terms of the contract and all the related facts and circumstances
indicate that Star controls the room as it is built. Crown is entitled to receive
with construction services, and Crown would recognize revenue over time
throughout the construction process.
Scenario 2: The terms of the contract and all the related facts and circumstances
completed gym, and Crown would recognize revenue upon contract completion.
Scenario 3: The terms of the contract and all the related facts and circumstances
CostDriver Company’s performance obligation is to provide the restaurant with
services continuously during the three months of the contract, and CostDriver
should recognize revenue over the life of the contract.
Scenario 4: The terms of the contract and all the related facts and circumstances
and the Tower should not recognize revenue until delivery of the apartment.
Judgment Case 5-6
The license granted by Pfizer is for functional intellectual property, so you
might be tempted to recognize revenue upon the date of transfer. However, the
with the R&D services to HealthPro and account for them as a single performance
obligation, with revenue recognized over time as Pfizer provides R&D services.