ACTG 4650 Assignment 7 Due April 4 For each of the following independent situati

Question

ACTG 4650

Assignment 7

Due April 4

For each of the following independent situations, answer the specific revenue concerns (provide authoritative support where appropriate).

1)        Company A enters into a contract on February 1, 2018 to manage rental property for Company B for the next 5 years. Company A will provide all services related to the management of the property and will receive a monthly payment equal to 2% of the gross rentals from the property. Historically, property of this type in this area has averaged an 85% occupancy rate. How should Company A determine the amount and timing of revenue recognition under this contract?

2)        Company A is constructing a high-rise luxury apartment building. The building will contain 80 apartments of similar size and layout. During 2018, Company A receives a deposit of $100,000 from a customer for one of the apartments. The deposit is only refundable if Company A fails to complete the building. Company A expects completion early in 2019. The remainder of the apartment’s sale price ($900,000) is due from the customer at the completion of the building when the customer can take possession. Can Company A recognize revenue in 2018 related to the contract with the customer paying the deposit?

3)        Bakery A has an incentive plan that gives its customers one point for each doughnut purchased. A customer that has accumulated 15 points can receive a free doughnut. During the current year, Bakery A sold 201,600 doughnuts at $1.20 each. Bakery A expects 90% of the points to be redeemed and 10,500 were redeemed in the current year. How much revenue should Bakery A recognize in the current year related to the sale of the doughnuts and the incentive plan?

Explanation / Answer

1. Company A should recognize full revenue as recieved from the property. Revenue should be booked on accural basis as and when it is accured to be recieved.

2. Company A cannot recognise the deposit as revenue as it is a liability untill the construction is completed. Company A expects completion early in 2019, then only the deposit should be recognised as part payment of revenue

3.  Bakery A should recognize sale of doughnuts ( 201600 doughnuts at $1.20 each = $241,920) in the current year as revenue. the cost of incentive plan should be (201600/15 = 13,440 * cost of doughnuts)

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.