Q12:

Suppose Company X agrees to sell goods to Company Y on 1 January for $10 per item.

The goods are delivered on 1 March.

Payment is received on 1 July.

The financial year-end is 31 December.

Company X should recognize the sales revenue on which date?

a. 1 March

b. 31 December

c. None of these answers

d. 1 January

e. 1 July

Answer: 1 March

Q12:

SMITH Company offers franchises for sale.

It recently agreed a deal with a new Franchisee: JONES COMPANY.

The terms of the deal are as follows:

FRANCHISE FEE PRICE CHARGED TO JONES: CASH $400,000 PLUS NOTE with a Nominal Value of $150,000 and a Present Value of $100,000

ALLOCATION OF FRANCHISE FEE PRICE TO SERVICES TO BE PROVIDED BY SMITH TO JONES:

Franchise Fee (for Brand rights/'know how'/exclusive location): 70% of Price Charged to Jones

Training Services: 20% of Price Charged to Jones

Consultancy Fee: 10% of Price Charged to Jones.

The parties met to discuss the terms on 1 September 2018. The deal was finally signed by both parties on 1 January 2019. All services may be assumed to have been provided by 1 April 2019.

Required:

What is the TOTAL amount of Unearned Revenue (from ALL comopnents of the deal) which Smith should record on 1 September 2018?

Select one:

a. $500,000

b. Zero

c. None of these answers

d. $600,000

e. $350,000

q13:

BUILDING COMPANY provided the following information about one of it's construction contracts (CONTRACT XY):

Cost incurred to date: $500,000

Cost to complete: $2,500,000

Contract price = Total Cost Plus $1,000,000

Amount paid to date by client: $100,000

How much revenue should BUILDING COMPANY recognize on CONTRACT XY?

Select one:

a. $500,000

b. $250,000

c. $800,000

d. $1,000,000

e. None of these answers

q14:

SMITH Company offers franchises for sale.

It recently agreed a deal with a new Franchisee: JONES COMPANY.

The terms of the deal are as follows:

FRANCHISE FEE PRICE CHARGED TO JONES: CASH $400,000 PLUS NOTE with a Nominal Value of $150,000 and a Present Value (of future cash flows) of $100,000

ALLOCATION OF FRANCHISE FEE PRICE TO SERVICES TO BE PROVIDED BY SMITH TO JONES:

Franchise Fee (for Brand rights/'know how'/exclusive location): 70% of Price Charged to Jones

Training Services: 20% of Price Charged to Jones

Consultancy Fee: 10% of Price Charged to Jones.

The parties met to discuss the terms on 1 September 2018. The deal was finally signed by both parties on 1 January 2019. All services may be assumed to have been provided by 1 April 2019.

Required:

How much should Smith record for Unearned Franchise Revenue on 1 January 2019?

Select one:

a. $900,000

b. $600,000

c. $500,000

d. $350,000

e. None of these answers