136 Part 1 Fuma n g al for a bruk $100.000 hase the goods 2000, the differ wan and com wufacturer Ahave ate brokerage firm alling franchise $10.00 vice fee of 6 per reafter. For this yn name and provides course, a nationwide re s and manage addition all costs of cutting and bundling, and transporting them to market. The nursery owner declined this offer, deciding that it would be more profitable to let the trees grow for one more year. Only a trivial amount of additional cost would be involved. The price of Christmas trees varies with their height. Should the nursery owner recognize any revenue from these trees in 2010? Why? 5. "Unbilled" receivables. The balance sheet of an architectural firm shows a significant asset labeled Unbilled Receivables. The firm says this represents in-process projects, valued at the rates at which the customers will be charged for the ar- chitects' time. Why would a firm do this instead of valuing projects in process at their cost, the same as a manufacturing firm would value its in- process inventory? Does it make any difference in the reported owners' equity for the architectural firm to report such in-process work as receivables rather than as inventory? Why? 6. Premium coupons. A manufacturer of coffee en- closed a premium coupon with each $2.50 (at wholesale) jar of coffee that it sold to retailers. Customers could use this coupon to apply to $0.50 of the price of a new type of instant tea that the manufacturer was introducing and that sold for $2.00 wholesale. The manufacturer reimbursed re- tail stores $0.60 for each such coupon they sub- mitted. (The extra $0.10 was to pay the grocer for coupon handling costs.) Past experience with sim- ilar premium offers indicated that approximately 20 percent of such coupons are eventually re- deemed. At the end of 2010, however, only about 10 percent of the coupons issued in 2010 had been redeemed. In recording the revenues for the com- pany for 2010, what allowance, if any, should be B. B used this inventory as collateral loan of $100,000 and sent the Sie A. Manufacturer A agreed to repurchase on or before July 1, 2010, for $112.000 ence representing interest on the loan a sation for B's services. Does Manufach revenue in 2010? Why? 9. Franchises. A national real estate broker has become highly successful by selling to local real estate brokers. It charges $100 the initial franchise fee and a service fee cent of the broker's revenue thereafter. For permits use of its well-known name and one-week initial training course, a nationwid. ferral system, and various marketing and man ment aids. Currently, the franchise fee a for 25 percent of the national firm's receipts.hu expects that the United States market will be rated within the next three years, and thereafter the firm will have to depend on the service fee and new sources of revenue that it may develo Should it recognize the $10,000 as revenue in the vear in which the franchise agreement is signed Why? If it does, what will happen to its profits after the market has become saturated? Why? 10. Computer systems. In early 2010, the sales vice president of Tech-Logic reached agreement to de liver several computer systems with a total price of $570,000 to an organization is one of the newly independent countries established following the dissolution of the former Soviet Union Tech Logic management was very excited about this contract. The countries that vere part of the for- mer Soviet Union represented a major market that was just opening up for trade, and these countries especially needed the kinds of high-technolog products that Tech-Logic sol. Tech-Logic man factured and shipped the entire $570,000 order during 2010. Tech-Logic normally recognized to enue on the sale of its products when they were shipped. However, Tech-Logic's controller wo dered whether the same revenue recognitione icy should apply to this contract. First, con law in these countries was evolving and it was to know if certain laws existed or what they made for these coupons? Why? If an allowance should be made, should it apply to the sales revenue of coffee or to the sales revenue of tea? Why? 7. Traveler's checks. A bank sells a customer 5500 of American Express traveler's checks, for which the bank collects from the customer 5505, (The bank charges a I percent fee for this service.) How does the bank record this transaction? How does the transaction affect American Express's balance sheet? 8. Product repurchase agreement. In December 2010 Manufacturer A sold merchandise to Wholesaler d or what they were In addition, the controller was uncertain Tech-Logic would receive the $570,000 in He had heard that in many of these countrie difficult to obtain currencies needed for $570,000 in casi lese countries it eeded for foreign Que exchange, although the customer kept assuring Tech-Logic that they would receive cash shortly. The controller pondered whether to recognize the entire $570,000 as revenue in 2010. If not, then when should this revenue be recognized? Why? Que exchange, although the customer kept assuring Tech-Logic that they would receive cash shortly. The controller pondered whether to recognize the entire $570,000 as revenue in 2010. If not, then when should this revenue be recognized? Why? exchange, although the customer kept assuring Tech-Logic that they would receive cash shortly. The controller pondered whether to recognize the entire $570,000 as revenue in 2010. If not, then when should this revenue be recognized? Why?! Lulpen- ufacturer A have en wh date brokerage firm selling franchises arges $10,000 for ice fee of 6 per- reafter. For this it at would be varies with r recognize Why? sheet of an cant asset m says this at the rates for the ar- chis instead ir cost, the alue its in- Efference in rchitectural receivables Case Ware a nationwide re- ng and manage- f coffee en- $2.50 (at co retailers. bly to $0.50 tea that the at sold for mbursed re- they sub- grocer for e with sim- proximately entually re- only about 10 had been or the com- , should be allowance the sales nue of tea? ence I pruum U sation for B's services. Does Manufactu revenue in 2010? Why? 9. Franchises. A national real estate brokera has become highly successful by selling fr to local real estate brokers. It charges $10 the initial franchise fee and a service fee of cent of the broker's revenue thereafter. For permits use of its well-known name and provia a one-week initial training course, a nationwi ferral system, and various marketing and man ment aids. Currently, the franchise fee acco for 25 percent of the national firm's receipts, but expects that the United States market will be sat rated within the next three years, and thereafter the firm will have to depend on the service fee and new sources of revenue that it may develop Should it recognize the $10,000 as revenue in the year in which the franchise agreement is signed?! Why? If it does, what will happen to its profits after the market has become saturated? Why? 10. Computer systems. In early 2010, the sales vice president of Tech-Logic reached agreement to de liver several computer systems with a total price of $570,000 to an organization in one of the newly independent countries established following the dissolution of the former Soviet Union. Tech- Logic management was very excited about this contract. The countries that were part of the lo er Soviet Union represented a major market til was just opening up for trade, and these coul especially needed the kinds of high-techno Soma D Systems practice Systems ment ma cyclical semicon anticipat ter 2000 Exchang the com recogniti SEC's re 101, Re (SAB 10 fourth qu As a Desai sel sions a li tions to re Wareh last three Net Sales Net Incom r $500 products that Tech-Logic sold. Tech-Logo factured and shipped the entire $570,000 during 2010. Tech-Logic normally recogni enue on the sale of its products when shipped. However, Tech-Logic's contro dered whether the same revenue recogn icy should apply to this contract. First, law in these nd these countries 'gh-technology Tech-Logic manu- $570,000 order recognized rev- When they were 'glc's controller won- recognition pol which 8. (The ervice.) In addf 101, Desa should tak n? How First, contract and cessful TUMS 10. the sales vice wily. after the market has become saturated? Why? 10. Computer systems. In early 2010, the sale president of Tech-Logic reached agreement liver several computer systems with a total prices $570,000 to an organization in one of the new independent countries established following the dissolution of the former Soviet Union. Tech- Logic management was very excited about this contract. The countries that were part of the for- mer Soviet Union represented a major market that was just opening up for trade, and these countries especially needed the kinds of high-technology products that Tech-Logic sold. Tech-Logic manu- factured and shipped the entire $570,000 order during 2010. Tech-Logic normally recognized rev- enue on the sale of its products when they were shipped. However, Tech-Logic's controller won- dered whether the same revenue recognition pol- icy should apply to this contract. First, contract law in these countries was evolving and it was haru to know if certain laws existed or what they were. In addition, the controller was uncertain when Tech-Logic would receive the $570,000 in cas He had heard that in many of these countries difficult to obtain currencies needed for Only a trivial amount of additional CDI involved. The price of Christmas trees varies with their height. Should the nursery owner recognize any revenue from these trees in 2010? Why? 5. "Unbilled" receivables. The balance sheet of an architectural firm shows a significant asset labeled Unbilled Receivables. The firm says this represents in-process projects, valued at the rates at which the customers will be charged for the ar- chitects' time. Why would a firm do this instead of valuing projects in process at their cost, the same as a manufacturing firm would value its in- process inventory? Does it make any difference in the reported owners' equity for the architectural firm to report such in-process work as receivables rather than as inventory? Why? 6. Premium coupons. A manufacturer of coffee en- closed a premium coupon with each $2.50 (at wholesale) jar of coffee that it sold to retailers. Customers could use this coupon to apply to $0.50 of the price of a new type of instant tea that the manufacturer was introducing and that sold for $2.00 wholesale. The manufacturer reimbursed re- tail stores $0.60 for each such coupon they sub- mitted. (The extra $0.10 was to pay the grocer for coupon handling costs.) Past experience with sim- ilar premium offers indicated that approximately 20 percent of such coupons are eventually re- deemed. At the end of 2010, however, only about 10 percent of the coupons issued in 2010 had been redeemed. In recording the revenues for the com- pany for 2010, what allowance, if any, should be made for these coupons? Why? If an allowance should be made, should it apply to the sales revenue of coffee or to the sales revenue of tea? Why? revenue in 20 9. Franchises. A has become h to local real the initial fra cent of the b permits use a one-week i ferral system ment aids. for 25 perce expects that rated within firm will ha new source Should it re year in whi Why? If it after the m 10. Computer president a liver severa $570,000 independe dissolution Logic mas contract. I mer Sovie was just o especially products factured during 20 enue on shipped. dered wh icy shoul 7. Traveler's checks. A bank sells a customer $500 of American Express traveler's checks, for which the bank collects from the customer $505. (The bank charges a 1 percent fee for this service) 136 Part 1 Fuma n g al for a bruk $100.000 hase the goods 2000, the differ wan and com wufacturer Ahave ate brokerage firm alling franchise $10.00 vice fee of 6 per reafter. For this yn name and provides course, a nationwide re s and manage addition all costs of cutting and bundling, and transporting them to market. The nursery owner declined this offer, deciding that it would be more profitable to let the trees grow for one more year. Only a trivial amount of additional cost would be involved. The price of Christmas trees varies with their height. Should the nursery owner recognize any revenue from these trees in 2010? Why? 5. "Unbilled" receivables. The balance sheet of an architectural firm shows a significant asset labeled Unbilled Receivables. The firm says this represents in-process projects, valued at the rates at which the customers will be charged for the ar- chitects' time. Why would a firm do this instead of valuing projects in process at their cost, the same as a manufacturing firm would value its in- process inventory? Does it make any difference in the reported owners' equity for the architectural firm to report such in-process work as receivables rather than as inventory? Why? 6. Premium coupons. A manufacturer of coffee en- closed a premium coupon with each $2.50 (at wholesale) jar of coffee that it sold to retailers. Customers could use this coupon to apply to $0.50 of the price of a new type of instant tea that the manufacturer was introducing and that sold for $2.00 wholesale. The manufacturer reimbursed re- tail stores $0.60 for each such coupon they sub- mitted. (The extra $0.10 was to pay the grocer for coupon handling costs.) Past experience with sim- ilar premium offers indicated that approximately 20 percent of such coupons are eventually re- deemed. At the end of 2010, however, only about 10 percent of the coupons issued in 2010 had been redeemed. In recording the revenues for the com- pany for 2010, what allowance, if any, should be B. B used this inventory as collateral loan of $100,000 and sent the Sie A. Manufacturer A agreed to repurchase on or before July 1, 2010, for $112.000 ence representing interest on the loan a sation for B's services. Does Manufach revenue in 2010? Why? 9. Franchises. A national real estate broker has become highly successful by selling to local real estate brokers. It charges $100 the initial franchise fee and a service fee cent of the broker's revenue thereafter. For permits use of its well-known name and one-week initial training course, a nationwid. ferral system, and various marketing and man ment aids. Currently, the franchise fee a for 25 percent of the national firm's receipts.hu expects that the United States market will be rated within the next three years, and thereafter the firm will have to depend on the service fee and new sources of revenue that it may develo Should it recognize the $10,000 as revenue in the vear in which the franchise agreement is signed Why? If it does, what will happen to its profits after the market has become saturated? Why? 10. Computer systems. In early 2010, the sales vice president of Tech-Logic reached agreement to de liver several computer systems with a total price of $570,000 to an organization is one of the newly independent countries established following the dissolution of the former Soviet Union Tech Logic management was very excited about this contract. The countries that vere part of the for- mer Soviet Union represented a major market that was just opening up for trade, and these countries especially needed the kinds of high-technolog products that Tech-Logic sol. Tech-Logic man factured and shipped the entire $570,000 order during 2010. Tech-Logic normally recognized to enue on the sale of its products when they were shipped. However, Tech-Logic's controller wo dered whether the same revenue recognitione icy should apply to this contract. First, con law in these countries was evolving and it was to know if certain laws existed or what they made for these coupons? Why? If an allowance should be made, should it apply to the sales revenue of coffee or to the sales revenue of tea? Why? 7. Traveler's checks. A bank sells a customer 5500 of American Express traveler's checks, for which the bank collects from the customer 5505, (The bank charges a I percent fee for this service.) How does the bank record this transaction? How does the transaction affect American Express's balance sheet? 8. Product repurchase agreement. In December 2010 Manufacturer A sold merchandise to Wholesaler d or what they were In addition, the controller was uncertain Tech-Logic would receive the $570,000 in He had heard that in many of these countrie difficult to obtain currencies needed for $570,000 in casi lese countries it eeded for foreign Que exchange, although the customer kept assuring Tech-Logic that they would receive cash shortly. The controller pondered whether to recognize the entire $570,000 as revenue in 2010. If not, then when should this revenue be recognized? Why? Que exchange, although the customer kept assuring Tech-Logic that they would receive cash shortly. The controller pondered whether to recognize the entire $570,000 as revenue in 2010. If not, then when should this revenue be recognized? Why? exchange, although the customer kept assuring Tech-Logic that they would receive cash shortly. The controller pondered whether to recognize the entire $570,000 as revenue in 2010. If not, then when should this revenue be recognized? Why?! Lulpen- ufacturer A have en wh date brokerage firm selling franchises arges $10,000 for ice fee of 6 per- reafter. For this it at would be varies with r recognize Why? sheet of an cant asset m says this at the rates for the ar- chis instead ir cost, the alue its in- Efference in rchitectural receivables Case Ware a nationwide re- ng and manage- f coffee en- $2.50 (at co retailers. bly to $0.50 tea that the at sold for mbursed re- they sub- grocer for e with sim- proximately entually re- only about 10 had been or the com- , should be allowance the sales nue of tea? ence I pruum U sation for B's services. Does Manufactu revenue in 2010? Why? 9. Franchises. A national real estate brokera has become highly successful by selling fr to local real estate brokers. It charges $10 the initial franchise fee and a service fee of cent of the broker's revenue thereafter. For permits use of its well-known name and provia a one-week initial training course, a nationwi ferral system, and various marketing and man ment aids. Currently, the franchise fee acco for 25 percent of the national firm's receipts, but expects that the United States market will be sat rated within the next three years, and thereafter the firm will have to depend on the service fee and new sources of revenue that it may develop Should it recognize the $10,000 as revenue in the year in which the franchise agreement is signed?! Why? If it does, what will happen to its profits after the market has become saturated? Why? 10. Computer systems. In early 2010, the sales vice president of Tech-Logic reached agreement to de liver several computer systems with a total price of $570,000 to an organization in one of the newly independent countries established following the dissolution of the former Soviet Union. Tech- Logic management was very excited about this contract. The countries that were part of the lo er Soviet Union represented a major market til was just opening up for trade, and these coul especially needed the kinds of high-techno Soma D Systems practice Systems ment ma cyclical semicon anticipat ter 2000 Exchang the com recogniti SEC's re 101, Re (SAB 10 fourth qu As a Desai sel sions a li tions to re Wareh last three Net Sales Net Incom r $500 products that Tech-Logic sold. Tech-Logo factured and shipped the entire $570,000 during 2010. Tech-Logic normally recogni enue on the sale of its products when shipped. However, Tech-Logic's contro dered whether the same revenue recogn icy should apply to this contract. First, law in these nd these countries 'gh-technology Tech-Logic manu- $570,000 order recognized rev- When they were 'glc's controller won- recognition pol which 8. (The ervice.) In addf 101, Desa should tak n? How First, contract and cessful TUMS 10. the sales vice wily. after the market has become saturated? Why? 10. Computer systems. In early 2010, the sale president of Tech-Logic reached agreement liver several computer systems with a total prices $570,000 to an organization in one of the new independent countries established following the dissolution of the former Soviet Union. Tech- Logic management was very excited about this contract. The countries that were part of the for- mer Soviet Union represented a major market that was just opening up for trade, and these countries especially needed the kinds of high-technology products that Tech-Logic sold. Tech-Logic manu- factured and shipped the entire $570,000 order during 2010. Tech-Logic normally recognized rev- enue on the sale of its products when they were shipped. However, Tech-Logic's controller won- dered whether the same revenue recognition pol- icy should apply to this contract. First, contract law in these countries was evolving and it was haru to know if certain laws existed or what they were. In addition, the controller was uncertain when Tech-Logic would receive the $570,000 in cas He had heard that in many of these countries difficult to obtain currencies needed for Only a trivial amount of additional CDI involved. The price of Christmas trees varies with their height. Should the nursery owner recognize any revenue from these trees in 2010? Why? 5. "Unbilled" receivables. The balance sheet of an architectural firm shows a significant asset labeled Unbilled Receivables. The firm says this represents in-process projects, valued at the rates at which the customers will be charged for the ar- chitects' time. Why would a firm do this instead of valuing projects in process at their cost, the same as a manufacturing firm would value its in- process inventory? Does it make any difference in the reported owners' equity for the architectural firm to report such in-process work as receivables rather than as inventory? Why? 6. Premium coupons. A manufacturer of coffee en- closed a premium coupon with each $2.50 (at wholesale) jar of coffee that it sold to retailers. Customers could use this coupon to apply to $0.50 of the price of a new type of instant tea that the manufacturer was introducing and that sold for $2.00 wholesale. The manufacturer reimbursed re- tail stores $0.60 for each such coupon they sub- mitted. (The extra $0.10 was to pay the grocer for coupon handling costs.) Past experience with sim- ilar premium offers indicated that approximately 20 percent of such coupons are eventually re- deemed. At the end of 2010, however, only about 10 percent of the coupons issued in 2010 had been redeemed. In recording the revenues for the com- pany for 2010, what allowance, if any, should be made for these coupons? Why? If an allowance should be made, should it apply to the sales revenue of coffee or to the sales revenue of tea? Why? revenue in 20 9. Franchises. A has become h to local real the initial fra cent of the b permits use a one-week i ferral system ment aids. for 25 perce expects that rated within firm will ha new source Should it re year in whi Why? If it after the m 10. Computer president a liver severa $570,000 independe dissolution Logic mas contract. I mer Sovie was just o especially products factured during 20 enue on shipped. dered wh icy shoul 7. Traveler's checks. A bank sells a customer $500 of American Express traveler's checks, for which the bank collects from the customer $505. (The bank charges a 1 percent fee for this service)