Problem 1: After the presentation of your report on the examination of the financial statements to the board of directors of Lana Rhodes Publishing, one of the new directors expresses surprise that the income statement assumes that an equal proportion of the revenue is earned with the publication of every issue of the company's magazine. She feels that the “crucial event” in the process of recognizing revenue in the magazine business is the cash sale of the subscription. She says that she does not understand why most of the revenue cannot be recognized in the period of the sale. Instructions: Discuss the propriety of timing the recognition of revenue in Lana Rhodes Publishing's accounts with respect to the following. 1.1 The cash sale of the magazine subscription. 1.2 The publication of the magazine every month. 1.3 Both events, by recognizing a portion of the revenue with the cash sale of the magazine subscription and a portion of the revenue with the publication of the magazine every month.
Problem 1: After the presentation of your report on the examination of the financial statements to the board of directors of Lana Rhodes Publishing, one of the new directors expresses surprise that the income statement assumes that an equal proportion of the revenue is earned with the publication of every issue of the company's magazine. She feels that the “crucial event” in the process of recognizing revenue in the magazine business is the cash sale of the subscription. She says that she does not understand why most of the revenue cannot be recognized in the period of the sale. Instructions: Discuss the propriety of timing the recognition of revenue in Lana Rhodes Publishing's accounts with respect to the following. 1.1 The cash sale of the magazine subscription. 1.2 The publication of the magazine every month. 1.3 Both events, by recognizing a portion of the revenue with the cash sale of the magazine subscription and a portion of the revenue with the publication of the magazine every month.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Problem 1: After the presentation of your report on the examination of the financial statements to the board of directors of Lana Rhodes Publishing, one of the new directors expresses surprise that the income statement assumes that an equal proportion of the revenue is earned with the publication of every issue of the company's magazine. She feels that the “crucial event” in the process of recognizing revenue in the magazine business is the cash sale of the subscription. She says that she does not understand why most of the revenue cannot be recognized in the period of the sale.
Instructions: Discuss the propriety of timing the recognition of revenue in Lana Rhodes Publishing's accounts with respect to the following.
- 1.1 The cash sale of the magazine subscription.
- 1.2 The publication of the magazine every month.
- 1.3 Both events, by recognizing a portion of the revenue with the cash sale of the magazine subscription and a portion of the revenue with the publication of the magazine every month.
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