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Chapter 2 Essay

566 words - 3 pages

AP stands for “Additional Problem.” “AP21” is additional problem 1 from chapter 2.
The additional problems for the Markets material is after the AP for chapter 12.

Chapter 2

When is revenue recognized by a corporation?
When the corporation designs a project.
When the corporation mass produces a product.
When the customer orders a product.
When the product is delivered to the customer and the customer promises to pay
When the customer fulfills his promise in item #d above by paying the cash to the corporation.
When the corporation receives a cash deposit from a customer for a product to be delivered next month.
When the right of return expires. The corporation sells thousands of small lawn mowers.

d. When the product is delivered to the customer and the customer promises to pay
Explanation: The FASB’s definition of a revenue is “Inflows or other enhancements of ...view middle of the document...

If the company has signed a long-term contract with the customer, revenue is recorded as progress is made on construction. All three exceptions conform to the general principle that revenue is recognized when it is “earned and receivable." In other words, the general principle always applies.

11/30/13: Bob Brown started his business, Bob Brown Company, by contributing $240 cash.
12/1/13 delivered $170 services to Michael Smith. Smith will pay his account on 1/1/14.
12/1/13 received a cash deposit of $300 from David Jones for services to be provided evenly in December, January, and February.

(1) record the transactions above through 12/1/13.
(2) record the adjusting entries necessary to prepare financial statements as of 12/31/13.
(3) prepare an Income Statement, a Statement of Stockholders Equity, and a Statement of Financial Position as of 12/31/13. You will find it helpful to prepare them in the order listed above.

Requirements 1 & 2
Cash $240
Common stock $240

Accounts Receivable $170
Sales revenue $170

Cash $300
Unearned revenue $300

Unearned revenue $100
Sales revenue $100
Unearned revenue is a liability. The ending balance in the Sales Revenue account should be $100 because that represents the services rendered to date.

Requirement 3
Bob Brown Company
Statement of Income
For the period ended Dec. 31, 2013

Operating revenues $270
Cost of services provided 0
Gross Profit 270
Operating Expenses 0
Net Income 270

Bob Brown Company
Statement of Stockholders Equity
For the period ended Dec. 31, 2013

Common Stock Retained earnings
Beginning balance $0 $0
+ Contributed capital $240
+ Net income $270
dividends 0
= Ending balance $240 $270

Bob Brown Company
Statement of Financial Position
For the period ended Dec. 31, 2013

Cash $540
Accounts Receivable $170
Total assets $710

Unearned revenue $200
Total liabilities $200

Stockholder’s equity
Common stock $240

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