6. Bren Co.\'s beginning inventory on January 1 was understated by S26,000, and

Question

6. Bren Co.'s beginning inventory on January 1 was understated by S26,000, and its ending inventory on December 31 was overstated by $52,000. As a result, Bren's cost of goods sold for the year was A. Understated by $26,000. B. Overstated by $78,000. C. Understated by $78,000. D. Overstated by $26,000. 7. Pristine Company provides cleaning services and sells garbage bins to office clients. On June 1"t, Pristine delivered 100 garbage bins to a client, and also entered into a 5-year contract for Pristine to provide cleaning services to that client. Which of the following is most likely to be true? a) Revenue for the garbage bins and the cleaning services must be recognized on June 1* b) Revenue for the garbage bins is recognized on June 1 and no revenue will be recognized for the cleaning services until the end of the 5th year. c) Revenue for the garbage bins is recognized on June 1* and revenue for the cleaning d) Binz Compan service is recognized over the 5 years as those services are performed y should not recognize any revenue until the end of the 5th year On November 1, 2016, Taylor signed a one-year contract to provide landscaping services to King Associates, with the contract to start immediately. King agreed to pay Taylor $4,800 for the one-year period. Taylor is confident that King will pay that amount, but payment is not scheduled to occur until 2017. Taylor should recognize revenue in 2016 in the amount of 8. A. SO. B. $800. C. $2,400. D. $4,800.

Explanation / Answer

6)

Costs of Goods Sold = Opening Stock + Purchase - Closing Stock

Suppose for example, Opening Stock = 26000, purchase = 100000 & Closing Stock = 0

So Cost of Goods Sold = 26000+100000-0 = 126000

Now, what would be the Cost of Goods Sold if Opening Stock is understated by 26000 & Closing Stock is overstated by 52000

New Cost of Goods Sold= (26000-26000)+100000-(0+52000)

= 0+100000-52000

= 48000

So, the effect is Cost of Goods Sold is understated by 78000 (126000-48000)

7)

As per IFRS, Revenue is recognized when performance obligation in a contract is satisfied

In the given Case, when Pristine delivers 100 garbage bins to Client, it satisfies the performance obligation in respect of garbage bins by delivering it to the client on June 1, so for garbage bins revenue can be recognized on June 1, but in case of Cleaning services, performance obligation will be satisfied when service will be provided over the period of 5 years, hence revenue from cleaning services will be recognized over the period of 5 years when those services will be performed

8)
As per IFRS, when services are to be performed over a period and it is considerable certainty that amount will be received, then revenue can be recognized using the proportional performance method. In this method, revenue will be recognized proportionately for the services performed.

In the given case, period of contract is 1 year and there is considerable certainity that amount will be received, hence Taylor can recognize revenue for 2 months during the year 2016

Proportional Revenue Recognized = 4800/12*2= $ 800

Related Questions

Navigate

• Browse (All)
• Browse 6
• Subjects

---

---

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