Income Measurement and Profitability Analysis
Chapter 5 Income Measurement and Profitability Analysis
exercises
Exercise 5–1
Requirement 1 Alpine West should recognize revenue over the ski season on an anticipated usage basis, in this case equally throughout the season. The fact that the $450 price is nonrefundable is not relevant to the revenue recognition decision. Revenue should be recognized as it is earned, in this case as the services are provided during the ski season.
Requirement 2
November 6, 2013 Cash 450 Unearned revenue 450 To record the cash collection
December 31, 2013 Unearned revenue ($450 x 1/5) 90 Revenue 90 To recognize revenue earned in December (no revenue earned in November, as season starts on December 1).
Requirement 3 $90 is included in revenue in the 2013 income statement. The $360 remaining balance in unearned revenue is included in the current liability section of the 2013 balance sheet.
Exercise 5–3
Requirement 1 2013 cost recovery %: $234,000 = 65% (gross profit % = 35%) $360,000
2014 cost recovery %: $245,000 = 70% (gross profit % = 30%) $350,000
2013 gross profit: Cash collection from 2013 sales of $150,000 x 35% = $52,500
2014 gross profit: Cash collection from 2013 sales of $100,000 x 35% = $ 35,000 + Cash collection from 2014 sales of $120,000 x 30% = 36,000 Total 2014 gross profit $71,000
Requirement 2 2013 deferred gross profit balance: 2013 initial gross profit ($360,000 – 234,000) $126,000 Less: Gross profit recognized in 2013 (52,500) Balance in deferred gross profit account $73,500
2014 deferred gross profit balance: 2013 initial gross profit ($360,000 – 234,000) $ 126,000 Less: Gross profit recognized in 2013 (52,500) Gross profit recognized in
exercises
Exercise 5–1
Requirement 1 Alpine West should recognize revenue over the ski season on an anticipated usage basis, in this case equally throughout the season. The fact that the $450 price is nonrefundable is not relevant to the revenue recognition decision. Revenue should be recognized as it is earned, in this case as the services are provided during the ski season.
Requirement 2
November 6, 2013 Cash 450 Unearned revenue 450 To record the cash collection
December 31, 2013 Unearned revenue ($450 x 1/5) 90 Revenue 90 To recognize revenue earned in December (no revenue earned in November, as season starts on December 1).
Requirement 3 $90 is included in revenue in the 2013 income statement. The $360 remaining balance in unearned revenue is included in the current liability section of the 2013 balance sheet.
Exercise 5–3
Requirement 1 2013 cost recovery %: $234,000 = 65% (gross profit % = 35%) $360,000
2014 cost recovery %: $245,000 = 70% (gross profit % = 30%) $350,000
2013 gross profit: Cash collection from 2013 sales of $150,000 x 35% = $52,500
2014 gross profit: Cash collection from 2013 sales of $100,000 x 35% = $ 35,000 + Cash collection from 2014 sales of $120,000 x 30% = 36,000 Total 2014 gross profit $71,000
Requirement 2 2013 deferred gross profit balance: 2013 initial gross profit ($360,000 – 234,000) $126,000 Less: Gross profit recognized in 2013 (52,500) Balance in deferred gross profit account $73,500
2014 deferred gross profit balance: 2013 initial gross profit ($360,000 – 234,000) $ 126,000 Less: Gross profit recognized in 2013 (52,500) Gross profit recognized in