Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Textbook Question
Chapter 17, Problem 2E
Consider each of the following scenarios:
- a. A seller orally agrees with one of its best customers to deliver goods in exchange for $10,000. While the seller’s practice is to obtain a written sales agreement, the seller delivered these goods to the customer without a written agreement due to the customer’s urgent need.
- b. A seller agrees to provide accounting services to a customer for the next year in exchange for $40,000. While the two parties are negotiating the terms of the agreement and the specific services to be performed, the seller begins to perform some services as a gesture of good faith.
- c. A seller has a written agreement to deliver goods to a customer for $50 per unit. The price will drop to $45 per unit if the customer purchases more than 2,000 units per month.
- d. A seller had a written agreement and provided custodial services to a customer for $2,000 per month in a previous year. The contract expired on December 31, 2019. During negotiations for a new contract in January 2020, custodial services were provided at the previous monthly rate and paid for by the buyer. The seller and the customer agree to a new contract on February 1, 2020. The seller is concerned whether a contract existed in January 2020 and whether revenue can be recognized.
Required:
- 1. Determine if a contract exists for each of the scenarios.
- 2. If it is determined that a contract exists but the seller believes it is probable that it will not collect the expected consideration, how does this affect the seller’s ability to recognize revenue?
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Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit. These terms will affect the cost of the asset for both the buyer and the seller.
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Tasty Tuna Corporation buys on terms of 3/15, net 45 from its principal supplier. If Tasty Tuna receives an invoice for $856.75, then the true price of this invoice is .
The supplier is willing to extend credit that exhibits a nominal annual cost of .
Suppose Tasty Tuna doesn’t take the discount and instead chooses to pay its supplier five days' late—so that on average, Tasty Tuna will pay its supplier on the 50th day after the date of sale. As a result, Tasty Tuna can decrease its actual nominal cost of trade credit by by paying late.
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Daniel Martin and John Duke contracted with J & S Distributors, Inc., to purchase a KIS Magnum Speed printer for $17,000. The parties agreed that Martin and Duke would send one-half of the money as a deposit and would pay the balance upon delivery. They also agreed to the following provision: In the event of non-payment of the balance of the purchase price reflected herein on due date and in the manner recorded or on such extended date which may be caused by late delivery on the part of [the seller], the Customer shall be liable for: (1) immediate payment of the full balance recorded herein; and (2) payment of interest at the rate of 12 percent per annum calculated on the balance due, when due, together with any attorney’s fees, collection charges and other necessary expenses incurred by [the seller]. When the machine arrived five days late, Martin and Duke refused to accept it, stating that the company had purchased a substitute machine elsewhere. Martin and Duke requested the…
Chapter 17 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 17 - Prob. 1GICh. 17 - Prob. 2GICh. 17 - When a company recognizes revenue during a period,...Ch. 17 - Prob. 4GICh. 17 - Prob. 5GICh. 17 - What is the proper accounting for a wholly...Ch. 17 - If a seller enters into more than one contract...Ch. 17 - Prob. 8GICh. 17 - Prob. 9GICh. 17 - Prob. 10GI
Ch. 17 - Prob. 11GICh. 17 - Prob. 12GICh. 17 - Prob. 13GICh. 17 - Prob. 14GICh. 17 - Prob. 15GICh. 17 - Prob. 16GICh. 17 - If the standalone selling price of a good or...Ch. 17 - Prob. 18GICh. 17 - Prob. 19GICh. 17 - If the sellers performance creates on asset (e.g.,...Ch. 17 - Describe input and output methods used to measure...Ch. 17 - Prob. 22GICh. 17 - Prob. 23GICh. 17 - Prob. 24GICh. 17 - Prob. 25GICh. 17 - A company should recognize revenue when a. the...Ch. 17 - A contract between one or more parties creates: a....Ch. 17 - Morgan Company and its customer agree to modify...Ch. 17 - Chlorine Corp. has a contract to deliver pool...Ch. 17 - Prob. 5MCCh. 17 - Prob. 6MCCh. 17 - In accounting for a long-term construction...Ch. 17 - Prob. 9MCCh. 17 - Prob. 10MCCh. 17 - CustomTee Inc. contracts with various customers to...Ch. 17 - Yankee Corp. agrees to provide Albany Company 24...Ch. 17 - Prob. 3RECh. 17 - Prob. 4RECh. 17 - LongDrive sells a specialized golf club that has...Ch. 17 - Prob. 6RECh. 17 - VolleyElite runs a volleyball program consisting...Ch. 17 - Enterprise Solutions Inc. licenses its...Ch. 17 - Prob. 9RECh. 17 - Magical Memories sells Florida theme park vacation...Ch. 17 - Prob. 11RECh. 17 - Robotics Inc. contracts with a customer to build a...Ch. 17 - CoolShoes sells its elite tennis shoes to sports...Ch. 17 - Using the information in RE17-13, what journal...Ch. 17 - GameDay sells recreational vehicles along with...Ch. 17 - Prob. 16RECh. 17 - Using the information provided in RE17-16, prepare...Ch. 17 - Prob. 18RECh. 17 - Prob. 19RECh. 17 - Company enters into a contract with Dearborn Inc....Ch. 17 - Consider each of the following scenarios: a. A...Ch. 17 - On August 1, 2019, Aiken Corp. enters into a...Ch. 17 - On January 1, 2019, Spring Fashions Inc. enters...Ch. 17 - On January 1, 2019, Loud Company enters into a...Ch. 17 - Assume the same facts as in El7-5. On July 1,...Ch. 17 - Assume the same facts as in E17-5 and ignore...Ch. 17 - Prob. 8ECh. 17 - GrillMaster Inc. sells an industry-leading line of...Ch. 17 - WaterWorld Inc. operates an aquarium and water...Ch. 17 - Prob. 11ECh. 17 - Jonas Consulting enters into a contract to provide...Ch. 17 - On March 1, 2019, Elkhart enters into a new...Ch. 17 - On January 5, 2019, ShoeKing Corp. sells for cash...Ch. 17 - On January 1, 2019, Piper Company entered into an...Ch. 17 - On January 1, 2019, Fulton Inc. enters into a...Ch. 17 - Prob. 17ECh. 17 - On December 1, 2019, AwakcAllNight Inc. sells...Ch. 17 - Rix Company sells home appliances and provides...Ch. 17 - Assume the same facts as in E17-19, except that...Ch. 17 - Crazy Computer Store sells a back-to-school bundle...Ch. 17 - Each of the following is an independent situation...Ch. 17 - Prob. 23ECh. 17 - Prob. 24ECh. 17 - Koolman Construction Company began work on a...Ch. 17 - Prob. 26ECh. 17 - Each of the following independent situations...Ch. 17 - JustKitchens Inc. provides services to restaurants...Ch. 17 - On January 1, 2019, ForeRunner Inc. enters into a...Ch. 17 - January 2, 2019, TI enters into a contract with...Ch. 17 - Prob. 5PCh. 17 - Prob. 6PCh. 17 - Fender Construction Company receives a contract to...Ch. 17 - SoccerHawk Merchandise Inc. enters into a 6-month...Ch. 17 - Prob. 9PCh. 17 - Prob. 10PCh. 17 - Blackmon Company provides locator services to the...Ch. 17 - Prior to ASU 2014-09 changing the principles...Ch. 17 - The first step in the revenue recognition process...Ch. 17 - Prob. 3CCh. 17 - One of the more difficult issues that companies...Ch. 17 - Prob. 5CCh. 17 - On October 1, 2019, Grahams WeedFeed Inc. signs a...Ch. 17 - On January 1, 2019, Mopps Corp. agrees to provide...Ch. 17 - Prob. 8CCh. 17 - Revenue for a company is recognized for accounting...Ch. 17 - Prob. 10C
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Revenue recognition explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=816Q6pOaGv4;License: Standard Youtube License