Joan Holtz Case 5-3

Topics: Accounts receivable, Generally Accepted Accounting Principles, Double-entry bookkeeping system Pages: 4 (986 words) Published: November 14, 2010
ACCT101 project Case5-3

1. Electric utility bills
Method 1:
As everyone knows, the electricity meters can be read every month. Therefore, in December the company will know the electricity usage of the former 12 months including that of December last year. And the usage of electricity in December this year can be included in the next year’s revenue. Method 2:

Strictly speaking, the revenue recognized in method 1 is not earned in THIS YEAR. through the method of estimating the electricity usage in December this year, added by the actual usage of former 11 months, we can get record the revenue and then do some adjustment in the next year.

2. Retainer fee
none of the $10,000 should be counted as revenue in 2006.
In accordance with the Basic Recognition Criteria, the revenue cannot be booked unless the entity has substantially performed what is required in order to earn income. Furnishing legal advice upon request is the law firm’s required service to be provided in this case. Since they did not perform any consultant service, the law firm cannot book the revenue for year 2006. Another appropriate way is applying the franchises model in this situation. As a franchiser recognizes revenue during the period in which it provides the services, the law firm may settle the revenue when their first general advice service is made.

3. Cruise
None of the $260,000 was revenue to Raymond’s in 2006 since the service would not be rendered until January 23, 2007.  Journal entries should be made in 2006 when Raymond’s sold all available space on the ship for $260,000:

Cash(+A)                         $260,000 Unearned revenue(+L)                          $260,000

Revenue would be booked once the service is rendered.
If passengers cancel their reservations before the ship is off, revenue still has not yet booked. The difference would be made when the trip has taken off.

4. Accretion
No revenue should be recognized in 2006.
The goods have not been delivered....
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