Chapter 3, Problem 5E

Identifying Accrual Basis Revenues

According to the revenue recognition principle, revenues should be recognized when they are earned, which happens when the company performs acts promised to the customer. For most businesses, this condition is met at the point of delivery of goods or services. The following transactions occurred in September:

1. a. Gillespie Enterprises Inc. issued $26 million in new common stock.
2. b. Cal State University received $20,000,000 cash for 80,000 five-game season football tickets. None of the games have been played.
3. c. Cal State played the first football game referred to in (b).
4. d. Hall Construction Company signed a contract with a customer for the construction of a new $500,000 warehouse. At the signing, Hall received a check for $50,000 as a deposit to be applied against amounts earned during the first phase of construction. Answer from Hall’s standpoint.
5. e. A popular snowboarding magazine company received a total of $1,800 today from subscribers. The subscriptions begin in the next fiscal year. Answer from the magazine company’s standpoint.
6. f. T-Mobile sold a $100 cell phone plan for service in September to a customer who charged the sale on his credit card. Answer from the standpoint of T-Mobile.

Required:

For each of the transactions, if revenue is to be recognized in September, indicate the amount. If revenue is not to be recognized in September, explain why.