F1.3 Revenue Recognition: Part 1 Flashcards
Franchisor recognize revenue in current year
Here, franchisor should report revenue from initial franchise fees when all performance obligations satisfied. Recognize entire initial fee in the current year.
Service contracts paid in full at time of sale and recorded as an increase to
Collections rec’d for service contracts increase unearned revenue account / q.3 increase deferred revenue but no to service revenue / q4 debit cash and credit sales rev. and credit deferred rev. (for service contract). NI overstated
Deferred revenue account affected by redemption of certifications and lapse of certificates
Deferred revenue represents future income collected in advance. When gift certificates are sold, deferred rev. increased. When certificates are redeemed, rev. earned and shown on IS and deferred rev. decreased. When certificate lapse, co. has no liability and rev. is earned and deferred rev. decreased. / q6, deferred rev. is a liability until service has been performed
Advancement pymt. For special order goods to be made and delivered in 6 months, reported in BS as
Current liability /q14 advance cash pymt is a liability, unearned revenue from landlord perspective; tenant’s perspective reported as current asset (prepaid rent)
Subscription rev.
$0 is reported in Y1 IS for sub. Rev. because sub. Starts Jan. Y2. / Deferred credit represents future income contracted for and/or collected in advance, but which has not yet been earned by the passing of time or other criteria
Unearned franchisee fees
q9, discounted PV of three annual pymts, here $72,000
Rent revenue
Sign up fee is amt. rec’d, $540 / 12 months (1 year lease) * 4 months (Sept-Dec per q). Monthly rent is 1,000 *4 (sept. - dec).
Annual fee in advance, recognize rev.
Rev. recognized evenly over contract year as services are performed
Deferred revenue
Initial payment is deferred rev. for the unearned portion. / Monthly fees are earned in same month they are rec’d
Output method for rev. recognition
Milestones achieved (whether production or distribution related) are ex. Of output method used for rev. recog. /Input methods: resource consumption, labor hours expended, and costs incurred relative to total expected costs
Assign discount
Allocate proportionately across all obligations within contract
Seller recog. Revenue over time than at a point in time
Benefits rec’d by buyers as seller performs. The buyer having legal title to an asset indicates control, recog. Rev. at a point in time. When rewards and risks of ownership remain with the seller, rev. would not be recog. When physical possession transfers to buyer, indicates control, implies rev. recog. at a point in time.
Aug. 31 JE, 4/15 L signed contract to provide special equip. for $215,000 to J, delivery in 8/31. J pays full amount on 7/31. L cost to produce is 175.
Debit unearned sales rev. of $215,000 on 8/31. / 7/31 Debit: Cash 215 Credit: Unearned sales rev. 215 / Aug. 31 Debit: Unearned sales rev. 215 Credit: Sales rev. 215 and Debit: COGS 175 Credit: Inventory 175
