Flashcards in FAR 23 - Deferred Revenue Deck (6):
On March 31, 2005, Dallas Co. received an advance payment of 60% of the sales price for special order goods to be manufactured and delivered within five months.
At the same time, Dallas subcontracted for production of the special order goods at a price equal to 40% of the main contract price.
What liabilities should be reported in Dallas' March 31, 2005 balance sheet?
Payables to subcontractor
60% of main contract price to Deferred Revenues
None to Payables to subcontractor
The only liability (deferred revenue) to be recorded is the advance for 60% of the main contract price.
Dallas received this cash and has a liability for that amount until it performs on the contract. Dallas has no liability for the subcontracted production because no resources have been exchanged.
Buc Co. receives deposits from its customers to protect itself against nonpayments for future services. These deposits should be classified by Buc as
A. A liability.
C. A deferred credit deducted from accounts receivable
D. A contra account
A. The firm has an obligation to return the deposit, and therefore records a liability upon receipt. It is probable that the deposit will be returned, and it is a result of a past transaction. A deposit meets the general definition of a liability.
Barnel Corp. owns and manages 19 apt. complexes. On signing a lease, each tenant must pay the first and last months rent and a $500 refundable security deposit.
Security deposits are rarely refunded in total, because cleaning costs of $150 per apt. are almost always deducted. About 30% of the time, tenants are also charged for damages to the apt. which typically cost $100 to repair.
If a 1-yr lease is signed on a $900 apt, what amount would Barnel report as refundable security deposit?
$500. The damage deposit on all apt is $500. Although it is likely that most tenants will be charged for some damages and cleaning, these reductions in the amount reimbursed cannot be applicated. The damage to the apt typically is not known until the end of the lease term.
The firm must pay $500 liability until the condition of each apt becomes known at the end of the lease term. The conditions causing the need for repair or cleaning may not have occurred at the balance sheet date.
T/F: The liabilities resulting from regular warranties and from extended warranties are contingent liabilities.
Regular warranties are contingent liabilities. However, the extended warranty uses an unearned revenue account - a liability to be recorded.
T/F: Revenue from an extended warranty contract is recognized in proportion to claims costs incurred when total claims costs are estimable.