Chapter 2
Exercises
E2-1. Determining accrual and cash basis revenue (AICPA adapted)
Since the subscription begins with the first issue of 1999, no revenue can be recognized in 1998 on an accrual basis. No product or service has been exchanged between Gee Company and its customers. Therefore, no subscription revenue has been earned.
On a cash basis, Gee would recognize the full amount of cash received of $36,000 as revenue in 1998.
E2-2. Determining unearned subscription revenue (AICPA adapted)
Since subscription revenue is not earned until the customer has received the video, unearned subscription revenue should be equal to the amount of subscriptions sold but not yet expired. Sold in 1998/Expiring in 1999 $200,000 Sold in 1998/Expiring in 2000 140,000 Sold in 1997*/Expiring in 1999 __125,000 Unearned subscription revenue $465,000 *(The subscriptions sold in 1997 that did not expire in 1997 or in 1998 must be carried over to 1999 where they will be earned and recognized.)
E2-3. Converting from accrual to cash basis revenue (AICPA adapted)
Under the cash basis of income determination, the company would not regard its accounts receivable as revenue. To find cash basis revenue, we have to subtract the increase in accounts receivable from the revenue figure:
Accrual basis revenue $1,750,000 + Beginning accounts receivable balance 375,000 - Ending accounts receivable balance (505,000) - Write-offs of accounts receivable ____(20,000) Cash basis revenue (cash collections on accounts receivable) $1,600,000 Alternate Solution:
Accounts Receivable
Beginning balance $375,000
Sales on account
(Accrual basis revenue) 1,750,000 $20,000 Accounts receivable write-off $1,600,000 Solve for: Cash collections
Ending balance $505,000
$375,000 + $1,750,000 - $20,000 - X = $505,000
X = $1,600,000
E2-4. Converting from accrual to cash basis revenue (AICPA adapted)
To convert Tara’s 1998 revenue from an
E2-1. Determining accrual and cash basis revenue (AICPA adapted)
Since the subscription begins with the first issue of 1999, no revenue can be recognized in 1998 on an accrual basis. No product or service has been exchanged between Gee Company and its customers. Therefore, no subscription revenue has been earned.
On a cash basis, Gee would recognize the full amount of cash received of $36,000 as revenue in 1998.
E2-2. Determining unearned subscription revenue (AICPA adapted)
Since subscription revenue is not earned until the customer has received the video, unearned subscription revenue should be equal to the amount of subscriptions sold but not yet expired. Sold in 1998/Expiring in 1999 $200,000 Sold in 1998/Expiring in 2000 140,000 Sold in 1997*/Expiring in 1999 __125,000 Unearned subscription revenue $465,000 *(The subscriptions sold in 1997 that did not expire in 1997 or in 1998 must be carried over to 1999 where they will be earned and recognized.)
E2-3. Converting from accrual to cash basis revenue (AICPA adapted)
Under the cash basis of income determination, the company would not regard its accounts receivable as revenue. To find cash basis revenue, we have to subtract the increase in accounts receivable from the revenue figure:
Accrual basis revenue $1,750,000 + Beginning accounts receivable balance 375,000 - Ending accounts receivable balance (505,000) - Write-offs of accounts receivable ____(20,000) Cash basis revenue (cash collections on accounts receivable) $1,600,000 Alternate Solution:
Accounts Receivable
Beginning balance $375,000
Sales on account
(Accrual basis revenue) 1,750,000 $20,000 Accounts receivable write-off $1,600,000 Solve for: Cash collections
Ending balance $505,000
$375,000 + $1,750,000 - $20,000 - X = $505,000
X = $1,600,000
E2-4. Converting from accrual to cash basis revenue (AICPA adapted)
To convert Tara’s 1998 revenue from an