9A: Video 2 Accruals, Franchise Agreements Flashcards Preview

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Flashcards in 9A: Video 2 Accruals, Franchise Agreements Deck (18):

Franchise Agreements:

initial franchise fee should be recognized by franchiser...

Only upon substantial performance of initial service obligation


Direct franchise costs are deferred until...

Related revenue is recognized


For real estate transaction: you should not record revenue of seller until...

Earnings process is complete


Profit from real estate sales may be recognized in full, provided the profit is...

Determinable and the earnings process is virtually complete And an additional 4 criterial are met


Real estate transactions:4 criteria that must be met to recognize profit in full at point of sale

1 sale is consummated
2 buyer's initial and continuing investments are adequate to Demonstrate a commitment to pay for the property
3 seller's receivable is not subject to future subordination
4 seller has transferred risks and rewards of ownership and doesNot have substantial continuing involvement in the property


6 possible methods real estate sales could be recorded using?

1 deposit
2 cost recovery
3 installment
4 reduced profit
5 percentage of completion
6 full accrual


When is income summary credited?

2) debited?

Close out expenses

2) close out revenues


Credit to income summary increases the...

Capital account


At the end of the period cost of sales gets closed out to...

Income summary


What kind of account is accrued expenses?

Liability account


When you are a sole proprietor, you are not...

An employee of your own business


Revenues from service contracts should be recognized on...

A pro rata basis over term of contract


Recognition of revenues on a pro rata basis over the term of the contract is a treatment that allocates the contract revenues to...

To the periods in which they are earned


Payments received for service contracts should be recorded initially in...

Deferred revenue


COGS calculation

2) Net purchases increases with...

COGS = Beg. Inv. + Net purchases - Ending Inventory

2) a decrease in accounts payable


When you are given:
sales, gross profit realized on sales made for years 1 + 2 and gross profit percentage for years 1 + 2

How do you calculate installment A/R for December 31st of year 2?

A/R Yr. 1 = sales - (gross profit yr. 1)/(GPR Yr. 1)
A/R Yr. 2 = sales - (gross profit yr. 2)/(GPR Yr. 2)


Under cost recovery method no profit of any type is recognized until...

Cumulative receipts (principal and interest) exceed cost of asset

Ex. If carrying amount is $2,000,000 and it was purchased for $3,000,000. The $1,000,000 GP can't be recognized until interest
And installment payments exceed $2,000,000


What is the journal entry to record $50,000, from unfavorable litigation that is both probable and estimable?

Estimated loss from lawsuit. 50,000
Estimated liability from lawsuit. 50,000