The following information is relevant for parts a), b), and c)

Kraft Gym Inc. operates multiple fitness clubs. The Balance Sheet of the company is presented below. Using the information provided, please answer the following questions.

Please make the following assumptions:

- Customers pay membership fees in advance of usage on a monthly basis

- The entire balance of deferred revenues relates to gym memberships

- Memberships can be obtained for 1-year or more

Assets31/12/202131/12/2020Cash280,000257,000Inventory112,50098,000PPE899,000789,000Total Assets1,291,5001,144,000Liabilities and Stakeholders EquityCurrent LiabilitiesAccounts Payable73,00073,900Short-term Debt87,80096,000Deferred Revenue, current198,500180,000Long term debt230,000280,000Common Stock200,000200,000Retained Earnings502,200314,100Total Liabilities and Stakeholders Equity1,291,5001,144,000

When can Kraft Gym Inc. recognize revenue for the memberships for its gyms?

b) As of December 31, 2021, what was the total value of gym memberships that had been sold, but that the company had not yet recognized as revenue?

c) Assume that the revenue recognized for memberships during the year 2021 was $1,118,500. Estimate how much Kraft Gym Inc. collected as cash for memberships during the year.

The following information is relevant for parts d), e), and f)

Assume that after graduating from Bayes, you founded a company that offers an Online Marketplace targeted at MBA students with product ideas around the world. This service is fully automated via a smartphone app that permits MBA students to list merchandise and conduct sales to customers online in either a fixed-price or auction-based format.

When a sale occurs, your company (offering the Marketplace) receives a percentage of the selling price (final value fees). This is your companys major source of revenue.

During the year 2021, the total sales on the marketplace was 8.0m. The company retained $1 million and paid the remaining $7 million to the sellers of the products. The company also incurred costs of 0.5m associated with completion of the sale of the goods. Your company is considering the two alternative revenue recognition policies.

Policy 1: Recognize revenues as a principal, e.g. on a grossed up basis.

Policy 2: Recognize revenues as an agent, e.g. on a net basis.

d) Please use the following table to record revenues, cost of goods sold, and operating income based on Policy 1.

Year ending December 31, 2021 (in millions)Revenues(Cost of goods sold)Operating Income

e)Please use the following table to record revenues, cost of goods sold, and operating income based on Policy 2

Year ending December 31, 2021 (in millions)Revenues(Cost of goods sold)Operating Income

f) Briefly explain why companies might have an incentive to opt for Policy 1.