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Intermediat
ACCOUNTING
Intermediat
e
e
Accounting
Accounting
2014 FASB Update
Chapter 18
Revenue Recognition
Prepared by
Coby Harmon
Prepared by
University of California,
BarbaraPrepared by
CobySanta
Harmon
Harmon
Westmont
College SantaCoby
University
of California,
Barbara
University of California, Santa Barbara
Westmont College
18-1
kieso
weygandt
warfield
team for success
PREVIEW OF CHAPTER
18
Intermediate Accounting
15th Edition (Update)
Kieso Weygandt Warfield
18-2
18
Revenue Recognition
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1.
6.
2.
7.
8.
9.
3.
4.
5.
18-3
18-4
LO 1
18-5
18-6
LO 1
18
Revenue Recognition
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1.
6.
2.
7.
8.
9.
3.
4.
5.
18-7
ILLUSTRATION 18-2
Five Steps of Revenue Recognition
18-8
LO 2
Step 3: Determine
the transaction
price.
18-9
LO 2
Step 5: Recognize
revenue when
each performance
obligation
is satisfied.
18-10
LO 2
18
Revenue Recognition
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1.
6.
2.
7.
8.
9.
3.
4.
5.
18-11
Can be
written,
oral, or
18-12
LO 3
18-13
LO 3
A company does not recognize contract assets or liabilities until one or both parties to
the contract perform.
Signing of the contract by the two parties is not recorded until one or both of the parties
perform under the contract. Until performance occurs, no net asset or net liability
occurs.
LO 3
Basic Accounting
ILLUSTRATION 18-4
Basic Revenue Transaction
5,000
Sales Revenue
Cost of Goods Sold
Inventory
18-15
5,000
3,000
3,000
LO 3
Basic Accounting
ILLUSTRATION 18-4
Basic Revenue Transaction
Cash
Accounts Receivable
18-16
5,000
5,000
LO 3
Companies determine
18-17
LO 3
Contract Modifications
Separate Performance Obligation
18-18
LO 3
$4,000
1,900
$5,900
LO 3
Contract Modifications
Prospective Modification
Company should
18-20
LO 3
Prospective Modification
For Crandall, the amount recognized as revenue for each of the
remaining products would be a blended price of $98.33, computed
as shown in Illustration 18-5.
Products not delivered under original contract
($100 x $40) =
$4,000
1,900
$5,900
LO 3
Prospective Modification
Under the prospective approach, a blended price ($98.33) is used
for sales in the periods after the modification.
ILLUSTRATION 18-6
Comparison of Contract Modification Approaches
18-22
LO 3
18
Revenue Recognition
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1.
6.
2.
7.
8.
9.
3.
4.
5.
18-23
Type of
Transaction
Sale of product
from inventory
Rendering a
service
Permitting use of
an asset
Sale of asset
other than
inventory
Description
of Revenue
Revenue from
sales
Revenue from
fees or services
Revenue from
interest, rents,
and royalties
Gain or loss on
disposition
Timing of
Revenue
Recognition
Services
performed and
billable
As time passes
or assets are
used
Date of sale or
trade-in
18-24
LO 4
18-25
LO 4
Performance ObligationsStep 2
ILLUSTRATION 18-8 Identifying Performance Obligations
18-26
LO 4
Performance ObligationsStep 2
ILLUSTRATION 18-8 Identifying Performance Obligations
18-27
LO 4
18
Revenue Recognition
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1.
6.
2.
7.
8.
9.
3.
4.
5.
18-28
18-29
Variable consideration
Noncash consideration
LO 5
18-30
LO 5
Most Likely Amount: The single most likely amount in a range of possible
consideration outcomes.
May be appropriate if the contract has only two possible outcomes.
18-31
LO 5
Variable Consideration
ILLUSTRATION 18-10
Transaction Price
LO 5
Variable Consideration
ILLUSTRATION 18-10
Transaction Price
$ 90,000
43,500
14,000
$147,500
Thus, the total transaction price is $147,500 based on the probability-weighted estimate. Management should update its
estimate at each reporting date. Using a most likely outcome approach may be more predictive if a performance bonus is
binary (Peabody either will or will not earn the performance bonus), such that Peabody earns either $50,000 for completion on
the agreed-upon date or nothing for completion after agreed-upon date. In this scenario, if management believes that Peabody
will meet the deadline and estimates the consideration using the most likely outcome, the total transaction price would be
$150,000.
Most likely outcome, if management believes they will meet the deadline and
receive the $50,000 bonus, the total transaction price would be?
LO 5
18-33
$150,000 (the outcome with 60% probability)
Variable Consideration
LO 5
18-35
LO 5
ILLUSTRATION 18-12
Transaction Price Extended Payment Terms
Facts: On July 1, 2014, SEK Company sold goods to Grant Company for
$900,000 in exchange for a 4-year, zero-interest-bearing note with a face amount
of $1,416,163. The goods have an inventory cost on SEKs books of $590,000.
Questions: (a) How much revenue should SEK Company record on July 1,
2014? (b) How much revenue should it report related to this transaction on
December 31, 2014?
Entry to record SEKs sale to Grant Company on July 1, 2014, is as follows.
Notes Receivable
Sales Revenue
900,000
516,163
1,416,163
590,000
590,000
LO 5
ILLUSTRATION 18-12
Transaction Price Extended Payment Terms
Facts: On July 1, 2014, SEK Company sold goods to Grant Company for
$900,000 in exchange for a 4-year, zero-interest-bearing note with a face amount
of $1,416,163. The goods have an inventory cost on SEKs books of $590,000.
Questions: (a) How much revenue should SEK Company record on July 1,
2014? (b) How much revenue should it report related to this transaction on
December 31, 2014?
Entry to record interest revenue at the end of the year, December 31, 2014.
Discount on Notes Receivable
54,000
54,000
Companies are not required to reflect the time value of money if the time
period for payment is less than a year.
18-37
LO 5
18-38
LO 5
18-39
LO 5
ILLUSTRATION 18-13
Transaction Price
Volume Discount
VOLUME DISCOUNT
Facts: Sansung Company offers its customers a 3% volume discount if they
purchase at least $2 million of its product during the calendar year. On March 31,
2014, Sansung has made sales of $700,000 to Artic Co. In the previous 2 years,
Sansung sold over $3,000,000 to Artic in the period April 1 to December 31.
Questions: How much revenue should Sansung recognize for the first 3
months of 2014?
Sansung makes the following entry on March 31, 2014.
Accounts Receivable
Sales Revenue
679,000
679,000
LO 5
ILLUSTRATION 18-13
Transaction Price
Volume Discount
Questions: How much revenue should Sansung recognize for the first 3
months of 2014?
679,000
Accounts Receivable
679,000
If Sansungs customer fails to meet the discount threshold, Sansung makes the
following entry upon payment.
Cash
Accounts Receivable
Sales Discounts Forfeited
18-41
700,000
679,000
21,000
LO 5
18
Revenue Recognition
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1.
6.
2.
7.
8.
9.
3.
4.
5.
18-42
18-43
LO 6
ILLUSTRATION 18-14
Transaction Price
Allocation
18-44
LO 6
18-45
LO 6
18-46
LO 6
18-47
LO 6
When a company sells a bundle of goods or services, the selling price of the bundle is often less than the
sum of the individual standalone prices. In this case, the company should allocate the discount to the
LO 6
18-48
product (or products) that is causing the discount and not to the entire bundles.
18
Revenue Recognition
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1.
6.
2.
7.
8.
9.
3.
4.
5.
18-49
18-50
LO 7
18-51
Description
A contract is an
agreement that creates
enforceable rights or
obligations.
Implementation
A company applies the revenue
guidance to contracts with
customers and must determine
if new performance obligations
are created by a contract
modification.
ILLUSTRATION 18-20
Summary of the
Five-Step Revenue
Recognition Process
18-52
LO 7
Description
Implementation
2. Identify the
separate
performance
obligations
in the
contract
A performance obligation
is a promise in a contract
to provide a product or
service to a customer.
ILLUSTRATION 18-20
Summary of the
Five-Step Revenue
Recognition Process
18-53
A performance obligation
exists if the customer can
benefit from the good or
service on its own or
together with other readily
available resources.
Accounting is based on
evaluation of whether the
product or service is distinct
within the contract.
If each of the goods or services
is distinct, but is interdependent
and interrelated, these goods
and services are combined and
reported as one performance
obligation.
LO 7
Description
Implementation
ILLUSTRATION 18-20
Summary of the
Five-Step Revenue
Recognition Process
18-54
LO 7
Description
If more than one
performance obligation
exists, allocate the
transaction price based
on relative fair values.
Implementation
The best measure of fair value
is what the good service could
be sold for on a standalone
basis (standalone selling price).
Estimates of standalone selling
price can be based on
1. adjusted market
assessment,
2. expected cost plus a margin
approach, or
ILLUSTRATION 18-20
Summary of the
Five-Step Revenue
Recognition Process
18-55
3. a residual approach.
LO 7
ILLUSTRATION 18-20
Summary of the
Five-Step Revenue
Recognition Process
18-56
Description
A company satisfies its
performance obligation
when the customer
obtains control of the
good or service.
Implementation
Companies satisfy performance
obligations either at a point in
time or over a period of time.
Companies recognize revenue
over a period of time if
1. the customer controls the
asset as it is created or the
company does not have an
alternative use for the asset,
and
2. the company has a right to
payment.
LO 7
18
Revenue Recognition
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1.
6.
2.
7.
8.
9.
3.
4.
5.
18-57
18-58
Right of return
Consignments
Repurchase agreements
Warranties
Principal-agent relationships
LO 8
Right of Return
18-59
LO 8
Right of Return
ILLUSTRATION 18-21
RecognitionRight of Return
RIGHT OF RETURN
Facts: Venden Company sells 100 products for $100 each to Amaya Inc. for
cash. Venden allows Amaya to return any unused product within 30 days
and receive a full refund. The cost of each product is $60. To determine the
transaction price, Venden decides that the approach that is most predictive
of the amount of consideration to which it will be entitled is the most likely
amount. Using the most likely amount, Venden estimates that:
1. Three (3) products will be returned.
2. The costs of recovering the products will be immaterial.
3. The returned products are expected to be resold at a profit.
18-60
LO 8
Right of Return
ILLUSTRATION 18-21
RecognitionRight of Return
10,000
9,700
300
Venden records the cost of goods sold with the following entry.
5,820
180
6,000
LO 8
Right of Return
ILLUSTRATION 18-21
RecognitionRight of Return
200
200
120
120
When a return occurs, Venden should reduce the Refund Liability and Estimated Inventory
Returns accounts and record related Returned Inventory as shown in the above entries for the
return of 2 products.
Companies record the returned asset in a separate account from inventory to provide
transparency. The carrying value of the returned asset is subject to impairment testing, separate
from the inventory. If a company is unable to estimate the level of returns with any reliability, it
should not report any revenue until the returns become predictive.
18-62
LO 8
Repurchase Agreements
18-63
LO 8
ILLUSTRATION 18-22
RecognitionRepurchase
Agreement
Repurchase Agreements
REPURCHASE AGREEMENT
100,000
100,000
For a sale and repurchase agreement, the terms of the agreement need to be analyzed to determine whether the
seller has transferred control to the customer, Lane Company. As indicated earlier, control of an asset refers to the
ability to direct the use of and obtain substantially all the benefits from the asset. Control also includes the ability
to prevent other companies from directing the use of and receiving the benefit from a good or service. In this case,
Morgan Inc. continues to have control of the asset. Therefore, this agreement is a financing transaction and not a
sale. Thus, the asst is not removed from the books of Morgan Inc.
18-64
LO 8
ILLUSTRATION 18-22
RecognitionRepurchase
Agreement
Repurchase Agreements
10,000
10,000
Morgan Inc. records interest and retirement of its liability to Lane Company
on December 31, 2014, as follows.
Interest Expense
11,000
11,000
121,000
121,000
LO 8
Bill-and-Hold Arrangements
18-66
LO 8
Bill-and-Hold Arrangements
ILLUSTRATION 18-23
RecognitionBill and Hold
18-67
LO 8
Bill-and-Hold Arrangements
ILLUSTRATION 18-23
RecognitionBill and Hold
LO 8
Bill-and-Hold Arrangements
ILLUSTRATION 18-23
RecognitionBill and Hold
450,000
Sales Revenue
450,000
Butter makes an entry to record the related cost of goods sold as follows.
Cost of Goods Sold
Inventory
18-69
280,000
280,000
LO 8
Principle-Agent Relationships
Examples:
18-70
Consignments ()
18-71
Consignments
18-72
ILLUSTRATION 18-25
RecognitionSales on
Consignment
LO 8
Consignments
18-73
ILLUSTRATION 18-25
RecognitionSales on
Consignment
LO 8
Warranties
Two types of warranties to customers:
1. Product meets agreed-upon specifications in contract at
time product is sold.
a. Warranty is included in sales price (assurance-type
warranty).
18-74
LO 8
Warranties
ILLUSTRATION 18-26
Performance Obligations
and Warranties
WARRANTIES
Facts: Maverick Company sold 1,000 Rollomatics during 2014 at a total
price of $6,000,000, with a warranty guarantee that the product was free of
any defects. The cost of Rollomatics sold is $4,000,000. The term of the
assurance warranty is two years, with an estimated cost of $30,000. In
addition, Maverick sold extended warranties related to 400 Rollomatics for 3
years beyond the 2-year period for $12,000.
18-75
LO 8
ILLUSTRATION 18-26
Performance Obligations
and Warranties
Warranties
6,012,000
30,000
Warranty Liability
30,000
12,000
Sales Revenue
6,000,000
4,000,000
4,000,000
LO 8
Delivery of a product
Performance of a service
18-77
Examples include:
18-78
LO 8
18-79
LO 8
18
Revenue Recognition
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1.
6.
2.
7.
8.
9.
3.
4.
5.
18-80
18-81
Presentation
ILLUSTRATION 18-29
Contract Asset Recognition
and Presentation
CONTRACT ASSET
Facts: On January 1, 2014, Finn Company enters into a contract to transfer
Product A and Product B to Obermine Co. for $100,000. The contract
specifies that payment of Product A will not occur until Product B is also
delivered. In other words, payment will not occur until both Product A and
Product B are transferred to Obermine. Finn determines that standalone
prices are $30,000 for Product A and $70,000 for Product B. Finn delivers
Product A to Obermine on February 1, 2014. On March 1, 2014, Finn
delivers Product B to Obermine.
No entry is required on Jan 1, 2014, because neither party has performed on the contract.
On Feb 1, Finn has satisfied its performance obligation and therefore reports revenue of $30,000.
However, it does not record an accounts receivable at this point because it does not have unconditional
right to receive the $100,000 unless it also transfers Product B to Obermine. In other words, a contract
asset occurs generally when a company must satisfy another performance obligation before it is entitled
LO 9
18-82
to bill the customer.
ILLUSTRATION 18-29
Contract Asset Recognition
and Presentation
Presentation
30,000
Sales Revenue
30,000
18-83
100,000
Contract Asset
30,000
Sales Revenue
70,000
LO 9
Presentation
ILLUSTRATION 18-30
Contract Liability Recognition
and Presentation
CONTRACT LIABILITY
Facts: On March 1, 2014, Henly Company enters into a contract to transfer
a product to Propel Inc. on July 31, 2014. It is agreed that Propel will pay the
full price of $10,000 in advance on April 1, 2014. The contract is
noncancelable. Propel, however, does not pay until April 15, 2014, and
Henly delivers the product on July 31, 2014. The cost of the product is
$7,500.
18-84
LO 9
ILLUSTRATION 18-30
Contract Liability Recognition
and Presentation
Presentation
Accounts Receivable
10,000
Cash
10,000
Accounts Receivable
10,000
10,000
Inventory
7,500
7,500 LO 9
Presentation
Costs to Fulfill a Contract
18-86
LO 9
Presentation
Collectibility
18-87
LO 9
Disclosure
Companies disclose qualitative and quantitative
information about the following:
18-88
Significant judgments
LO 9
Disclosure
Companies provide a range of disclosures:
Disaggregation of revenue
18-89
LO 9
APPENDIX
18A
18-90
APPENDIX
18A
18-91
Examples:
LO 10
APPENDIX
18A
Percentage-of-Completion Method
Completed-Contract Method
18-92
LO 10
APPENDIX
18A
LO 10
APPENDIX
18A
18-94
LO 10
APPENDIX
18A
Percentage-of-Completion Method
Revenue to Recognized Cost-to-Cost Basis
Illustration 18-1A
Illustration 18-2A
Illustration 18-3A
18-95
LO 10
APPENDIX
18A
PERCENTAGE-OF-COMPLETION METHOD
Note that by the end of 2015, Hardhat has revised the estimated
total cost from $4,000,000 to $4,050,000)
18-96
LO 10
APPENDIX
18A
PERCENTAGE-OF-COMPLETION METHOD
Illustration 18-4A
18-97
LO 10
APPENDIX
18A
PERCENTAGE-OF-COMPLETION METHOD
Illustration 18-5A
APPENDIX
18A
PERCENTAGE-OF-COMPLETION METHOD
18-99
LO 10
Illustration 18-6A
APPENDIX
18A
PERCENTAGE-OFCOMPLETION
METHOD
Illustration 18-7A
18-100
Hardhats entries to recognize revenue and gross profit each year and to record completion and
final approval of the contract.
LO 10
APPENDIX
18A
PERCENTAGE-OF-COMPLETION METHOD
18-101
LO 10
APPENDIX
18A
PERCENTAGE-OF-COMPLETION METHOD
18-102
LO 10
APPENDIX
18A
PERCENTAGE-OF-COMPLETION METHOD
18-103
LO 10
APPENDIX
18A
PERCENTAGE-OF-COMPLETION METHOD
18-104
LO 10
APPENDIX
18A
PERCENTAGE-OF-COMPLETION METHOD
In 2016, Hardhats financial statements only include an income statement because the bridge
project was completed and settled.
In addition, Hardhat should disclose the following information in each year.
LO 10
18-105
APPENDIX
18A
PERCENTAGE-OF-COMPLETION METHOD
2015
2016
$675,000
$675,000
$675,000
150,000
287,400
170,100
450,000
170,100
135,000
360,000
180,000
112,500
262,500
300,000
Contract price
Cost incurred current year
Estimated cost to complete
in future years
18-106
LO 10
APPENDIX
18A
PERCENTAGE-OF-COMPLETION METHOD
Illustration:
2014
$ 150,000
2015
$
437,400
450,000
170,100
600,000
607,500
25.0%
2016
$ 607,500
607,500
72.0%
100.0%
Contract price
675,000
675,000
675,000
Revenue recognizable
168,750
486,000
675,000
(168,750)
(486,000)
168,750
317,250
189,000
(150,000)
(287,400)
(170,100)
18,750
29,850
18,900
LO 10
APPENDIX
18A
Illustration:
PERCENTAGE-OF-COMPLETION METHOD
2014
150,000
150,000
2015
287,400
287,400
2016
170,100
170,100
Accounts receivable
Billings on contract
135,000
360,000
180,000
Cash
Accounts receivable
112,500
Construction in progress
Construction expense
Construction revenue
18,750
150,000
Construction in progress
Cash
Billings on contract
Construction in progress
18-108
135,000
360,000
262,500
112,500
300,000
262,500
29,850
287,400
168,750
180,000
300,000
18,900
170,100
317,250
189,000
675,000
675,000
LO 10
APPENDIX
18A
PERCENTAGE-OF-COMPLETION METHOD
Illustration:
Income Statement
Revenue on contracts
Cost of construction
Gross profit
18-109
2014
$ 168,750
150,000
18,750
2015
$ 317,250
287,400
29,850
22,500
33,750
120,000
2016
$ 189,000
170,100
18,900
9,000
LO 10
APPENDIX
18A
COMPLETED-CONTRACT METHOD
18-110
APPENDIX
18A
COMPLETED-CONTRACT METHOD
Illustration:
2014
150,000
150,000
2015
287,400
287,400
2016
170,100
170,100
Accounts receivable
Billings on contract
135,000
360,000
180,000
Cash
Accounts receivable
112,500
Construction in progress
Cash
Construction in progress
Construction expense
Construction revenue
18-111
135,000
360,000
262,500
112,500
180,000
300,000
262,500
300,000
67,500
607,500
675,000
LO 11
APPENDIX
18A
COMPLETED-CONTRACT METHOD
Illustration:
Income Statement
Revenue on contracts
Cost of construction
Gross profit
18-112
2014
$
-
22,500
15,000
2015
$
-
120,000
2016
$ 675,000
607,500
67,500
57,600
LO 11
APPENDIX
18A
Under both percentage-of-completion and completedcontract methods, the company must recognize in the
current period the entire expected contract loss.
18-113
APPENDIX
18A
2015
2016
$675,000
$675,000
$675,000
150,000
287,400
215,436
450,000
215,436
135,000
360,000
180,000
112,500
262,500
300,000
Contract
price
Casper Construction
Co.
Cost incurred current year
Estimated cost to complete
in future years
b) Prepare the journal entries to record revenue and expense for 2014, 2015,
and 2016 assuming the estimated cost to complete at the end of 2015 was
$215,436 instead of $170,100.
18-114
LO 12
APPENDIX
18A
2015
$
450,000
215,436
600,000
652,836
25.0%
$
18-115
437,400
2016
$ 652,836
652,836
67.0%
100.0%
675,000
675,000
675,000
168,750
452,250
675,000
(168,750)
(452,250)
168,750
283,500
222,750
(150,000)
(287,400)
(215,436)
18,750
(3,900)
7,314
LO 12
APPENDIX
18A
18-116
2015
2016
18,750
150,000
7,314
215,436
168,750
222,750
3,900
287,400
283,500
LO 12
APPENDIX
18A
2015
2016
$675,000
$675,000
$675,000
150,000
287,400
246,038
450,000
246,038
135,000
360,000
180,000
112,500
262,500
300,000
Contract
price
Casper Construction
Co.
Cost incurred current year
Estimated cost to complete
in future years
c)
18-117
Prepare the journal entries for 2014, 2015, and 2016 assuming the
estimated cost to complete at the end of 2015 was $246,038 instead of
$170,100.
LO 12
APPENDIX
18A
$ 150,000
2015
$
437,400
450,000
246,038
600,000
683,438
25.0%
2016
$ 683,438
683,438
64.0%
100.0%
Contract price
675,000
675,000
675,000
Revenue recognizable
168,750
432,000
675,000
(168,750)
(432,000)
168,750
263,250
243,000
(150,000)
(290,438)
(243,000)
18,750
(27,188)
LO 12
APPENDIX
18A
18-119
2015
18,750
150,000
2016
243,000
168,750
243,000
290,438
27,188
263,250
LO 12
APPENDIX
18A
18-120
2015
2016
8,438
8,438
LO 12
APPENDIX
18B
Franchises
Four types of franchising arrangements have evolved:
1. Manufacturer-retailer
2. Manufacturer-wholesaler
3. Service sponsor-retailer
4. Wholesaler-retailer
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APPENDIX
18B
Franchises
Fastest-growing category is service sponsor-retailer:
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APPENDIX
18B
Franchises
Two sources of revenue:
1. Sale of initial franchises and related assets or services,
and
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APPENDIX
18B
Franchises
The franchisor normally provides the franchisee with:
1. Assistance in site selection
2. Evaluation of potential income
3. Supervision of construction activity
4. Assistance in the acquisition of signs, fixtures, and equipment
5. Bookkeeping and advisory services
6. Employee and management training
7. Quality control
8. Advertising and promotion
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LO 13
APPENDIX
18B
Franchise Accounting
Performance obligations relate to:
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APPENDIX
18B
Franchise Accounting
Franchisors commonly charge an initial franchise fee and
continuing franchise fees:
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APPENDIX
18B
Pizza for 5 years. Tums charges Food Fight an initial franchise fee of
$50,000 for the right to operate as a franchisee. Of this amount, $20,000 is
payable when Food Fight signs the agreement, and the balance is payable
in five annual payments of $6,000 each on December 31. Food Fight also
LO 13
APPENDIX
18B
Identify the performance obligations and the point in time when the
performance obligations are satisfied and revenue is recognized.
Rights to the trade name, market area, and proprietary knowhow for 5 years are not individually distinct.
Each one is not sold separately and cannot be used with other
goods or services that are readily available to the franchisee.
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APPENDIX
18B
Identify the performance obligations and the point in time when the
performance obligations are satisfied and revenue is recognized.
Tums recognizes revenue for the royalties when (or as) the
uncertainty is resolved.
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APPENDIX
18B
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APPENDIX
18B
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Cash
20,000
Notes Receivable
30,000
6,043
20,000
9,957
14,000
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APPENDIX
18B
20,000
Franchise Revenue
Unearned Service Revenue (training)
20,000
9,957
9,957
14,000
Sales Revenue
Cost of Goods Sold
Inventory
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14,000
10,000
10,000
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APPENDIX
18B
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APPENDIX
18B
service techniques;
(c) providing business and training manuals; and
(d) advertising programs and training.
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APPENDIX
18B
Facts: As an almost entirely service operation (all parts and other supplies
are purchased as needed by customers), Tech Solvers provides few
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LO 13
APPENDIX
18B
Identify the performance obligations and the point in time when the
performance obligations are satisfied and revenue is recognized.
Each one is not sold separately and cannot be used with other
goods or services that are readily available to the franchisee.
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LO 13
APPENDIX
18B
Identify the performance obligations and the point in time when the
performance obligations are satisfied and revenue is recognized.
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LO 13
APPENDIX
18B
5,000
5,000
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1,000
1,000
LO 13
Copyright
Copyright 2015 John Wiley & Sons, Inc. All rights reserved.
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