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Chapter 18: Q38Q. (page 1032)
Why in franchise arrangements may it be improper to recognize the entire franchise fee as revenue at the date of sale?
When many of the franchisor's services are yet to be done, it is inappropriate to record the whole franchise price as income at the time of sale.
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Shaw Company sells goods that cost \(300,000 to Ricard Company for \)410,000 on January 2, 2017. The sales price includes an installation fee, which has a standalone selling price of \(40,000. The standalone selling price of the goods is \)370,000. The installation is considered a separate performance obligation and is expected to take 6 months to complete.
Instructions
(b) Shaw prepares an income statement for the first quarter of 2017, ending on March 31, 2017 (installation was completed on June 18, 2017). How much revenue should Shaw recognize related to its sale to Ricard?
What is the proper accounting for volume discounts on sales of products?
Jupiter Company sells goods to Danone Inc. by accepting a note receivable on January 2, 2017. The goods have a sales price of \(610,000 (cost of \)500,000). The terms are net 30. If Danone pays within 5 days, however, it receives a cash discount of $10,000. Past history indicates that the cash discount will be taken. On January 28, 2017, Danone makes payment to Jupiter for the full sales price.
Instructions
(a) Prepare the journal entry(ies) to record the sale and related cost of goods sold for Jupiter Company on January 2, 2017, and the payment on January 28, 2017. Assume that Jupiter Company records the January 2, 2017, transaction using the net method.
(b) Prepare the journal entry(ies) to record the sale and related cost of goods sold for Jupiter Company on January 2, 2017, and the payment on January 28, 2017. Assume that Jupiter Company records the January 2, 2017, transaction using the gross method.
Describe the conditions when contract assets and liabilities are recognized and presented in financial statements.
Nate Beggs signs a 1-year contract with BlueBox Video. The terms of the contract are that Nate is required to pay a nonrefundable initiation fee of \(100. No annual membership fee is charged in the first year. After the first year, membership can be renewed by paying an annual membership fee of \)5 per month. BlueBox determines that its customers, on average, renew their annual membership three times after the first year before terminating their membership. What amount of revenue should BlueBox recognize in its first year?
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