1. Turn in a hard copy at the beginning of class.
2. “Consulting” solution manuals or prior years‟ assignments is academic dishonesty. So is discussing your homework assignments with any classmates.
3. Be prepared to explain your answers in class.
Homework #1. INCOME MEASUREMENT AND ACCRUAL ACCOUNTING
What is a synonym for unearned revenue?
Accumulated depreciation on the balance sheet equals depreciation expense for the year on the income statement. Do you agree? Why or why not?
Cycloanalysts is a store for cycling enthusiasts. It sells bikes, parts and accessories, in addition to providing maintenance and repair services. Indicate the amount of revenue (if any) that Cycloanalysts records during the months of February, March and April for each of the following: 1) Collects $800 cash from a customer in March for a custom-made bicycle that will be delivered to the customer in April.
2) Collects $2,145 cash from customers for bike accessories sold in March. 3) Collects $300 from a customer in March for bike repairs completed in February. 4) Rents space in its store to a coffee kiosk for $500 per month effective March 1. Receives $1,000 cash on March 1 for two months rent.
Fed Up Deli uses accrual basis accounting. Indicate the amount of expense (if any) that Fed Up records during October for each of the following:
1) Pays $475 for ads that appeared in the local newspaper during September. 2) Pays $6,000 on October 6 for freezers that were delivered to the deli on September 30. Fed Up expects the freezers to last five years.
3) Pays $12,000 in property taxes for the period from October 1 this year to September 30 of the next year.
4) Pays $10,000 on October 20 as a deposit on land Fed Up plans to purchase for a second location. 1
Assume a company prepares financial statements once a year. Indicate the accounts affected and amounts at December 31, 2007 for each of the following:
1) A two-year insurance policy costing $3,000 was purchased on October 31, 2007. 2) Salaries owed to employees on December 31, 2007 amount to $2,300. 3) Depreciation on office equipment for the year is $1,869.
4) A $100,000 note receivable earnings 4.1% annually was held for the entire year. (Assume the original principal and all interest will be paid in cash when the note comes due in two years.)
Royal Caribbean Cruises states in its financial statements that payments received in advance for passenger cruises represent unearned revenue and are initially recorded as customer deposit liabilities on its balance sheet. Customer deposits are subsequently recognized as passenger ticket revenue upon completion of the voyage.
Customer deposits at the end of 2005 were $875 and at the end of 2006 were $885. Passenger cruise revenue for 2006 totals $3,609. Assume all cruises are paid in full before the voyage. How much cash did Royal Caribbean collect in 2006 from customers for cruise tickets?
What do you expect is the largest asset on Royal Caribbean‟s balance sheet?
Warner Music Group became the only stand-alone music company to be publicly traded in the United States in May 2005. It is home to a collection of the best-known record labels in the music industry including Asylum, Atlantic, Bad Boy, Cordless, East West, Elektra, Lava, Maverick, Nonesuch, Reprise, Rhino, Roadrunner, Rykodisc, Sire, Warner Bros. and Word. The company has two divisions: the Recorded Music business (discovery and development of artists and the related marketing and distribution of recorded music by such artists) and the Music Publishing business (intellectual property business focused on exploiting the over one million musical compositions which the company owns).
The company regularly pays advance royalties to its artists which are initially recorded as an asset. These payments are expensed in the period when the sale...
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