Assume that you have a client which does lawn care activities for major companies. They are really good at lawn care and have a following from local businesses. The Ortez Company, to become a client, prepays Ace Company $18,000 on March 31, 2023, for lawn care services for the calendar years 2023, 2024 and 2025. Assume the revenue is to be recognized by Ace Company, under the accrual method, equally over the three year period. When and what amounts would Ace Company recognize this advanced payment for services on its corporate tax returns for 2023, 2024 and 2025?
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Assume that you have a client which does lawn care activities for major companies. They are really good at lawn care and have a following from local businesses. The Ortez Company, to become a client, prepays Ace Company $18,000 on March 31, 2023, for lawn care services for the calendar years 2023, 2024 and 2025. Assume the revenue is to be recognized by Ace Company, under the accrual method, equally over the three year period. When and what amounts would Ace Company recognize this advanced payment for services on its corporate tax returns for 2023, 2024 and 2025?
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- Describe the revenue recognition policy that the company should follow: Comfort Furniture sells household furniture. Customers can pay for the furniture at the time of delivery or they can wait one year to make payment. In the latter case, the customer must pay for the retail price of the furniture plus an additional 16 percent. If the customer decides to pay after one year, should Comfort Furniture report the additional 16 percent as part of the revenue from selling the furniture or should it be reported separately? Assume that the ability to collect the receivable is not an issue.Oriole Financial Services performs bookkeeping and tax-reporting services to startup companies in the Hiawatha area. On January 1, 2025, Oriole entered into a 3-year service contract with Pharoah Tech. Pharoah promises to pay $21,600 at the beginning of each year, which at contract inception is the standalone selling price for these services. At the end of the second year, the contract is modified and the fee for the third year of services is reduced to $19,400. In addition, Pharoah agrees to pay an additional $48,500 at the beginning of the third year to cover the contract for 3 additional years (i.e., 4 years remain after the modification). The extended contract services are similar to those provided in the first 2 years of the contract. (a) Prepare the journal entries for Oriole in 2025 and 2026 related to this service contract. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no…Presented below are two independent revenue arrangements for Colbert Company. Instructions Respond to the requirements related to each revenue arrangement. a. Colbert sells 3D printer systems. Recently, Colbert provided a special promotion of zero-interest financing for 2 years on any new 3D printer system. Assume that Colbert sells Lyle Cartright a 3D system, receiving a $5,000 zero-interest-bearing note on January 1, 2020. The cost of the 3D printer system is $4,000. Colbert imputes a 6% interest rate on this zero-interest note transaction. Prepare the journal entry to record the sale on January 1, 2020, and compute the total amount of revenue to be recognized in 2020. b. Colbert sells 20 nonrefundable $100 gift cards for 3D printer paper on March 1, 2020. The paper has a standalone selling price of $100 (cost $80). The gift cards expiration date is June 30, 2020. Colbert estimates that customers will not redeem 10% of these gift cards. The pattern of redemption is as follows.…
- Prepare the journal entry using revenue recognition. During 2023, one of our construction customers asked us to do something we haven’t done before. In addition to building an apartment building, they asked us to cover the building maintenance on a separate building over a period of two years. We agreed as this helped us gain the construction portion of the contract. Construction of the building was finished by the end of the fiscal year, but the two-year maintenance contract extends to the end of June 2025. The total value of the contract was $850,000 and WC’s management estimates that a similar maintenance contract would be sold for approximately $110,000 and the standalone construction would have been $740,000. We have done separate maintenance contracts as a standalone service in the past. As of now, the full $850,000 is recorded as revenue for the 2023 fiscal year.Consider the following independent situations: For each of these situations, describe the revenue recognition policy that you believe that they should follow, explaining the basis for your recommendation 1. An international health club sells lifetime memberships costing $1,500 which allow the purchaser unlimited use of any of the club's 300 facilities around the world. The initiation fee may be paid in 36 monthly installments, with a two percent interest charge on any unpaid balance. 2. Franklin Motors, Inc., has always offered a limited, 36-month warranty on its cars and trucks, but to counter the significant competition in the industry, the company has come to the conclusion that it must do something more. With that in mind, the company developed a new warranty program: For a $1,500 payment at the time of purchase, a customer can buy a seven-year warranty that will cover replacement of almost all parts and labor. The purchased warranty expires at the end of seven years or when the…Blue Company, an architectural firm, has a bookkeeper who maintains a cash receipts and disbursements journal. At the end of the year (2019), the company hires you to convert the cash receipts and disbursements into accrual basis revenues and expenses. The total cash receipts are summarized as follows. The accounts receivable from customers at the end of the year are 120,000. You note that the accounts receivable at the beginning of the year were 190,000. The cash sales included 30,000 of prepayments for services to be provided over the period January 1, 2019, through December 31, 2021. a. Compute the companys accrual basis gross income for 2019. b. Would you recommend that Blue use the cash method or the accrual method? Why? c. The company does not maintain an allowance for uncollectible accounts. Would you recommend that such an allowance be established for tax purposes? Explain.
- Presented below are two independent revenue arrangements for Pharoah Company. Respond to the requirements related to each revenue arrangement. Click here to view factor table. Pharoah sells 3D printer systems. Recently, Pharoah provided a special promotion of zero-interest financing for 2 years on any new 3D printer system. Assume that Pharoah sells University co-op a 3D system, receiving a $5,100 zero-interest-bearing note on March 1, 2020. The cost of the 3D printer system is $3,060. Pharoah imputes a 8% interest rate on this zero-interest note transaction. Prepare the journal entry to record the sale on March 1, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter O for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places, eg. 58,971.) Account Titles and Explanation Debit Credit…On October 1, 2021, B Incorporated received $90,000 for a three-year software subscription from a new client. The software subscriptionwill start on January 1, 2022. How much is the Subscription Revenue to bereported in the 2021 Income Statement?Assume Avaya contracted to provide a customer with Internet infrastructure for $2,200,000. The project began in 2024 and was completed in 2025. Data relating to the contract are summarized below: Costs incurred during the year Estimated costs to complete as of 12/31 Billings during the year Cash collections during the year Complete this question by entering your answers in the tabs below. Required: 1. Compute the amount of revenue and gross profit or loss to be recognized in 2024 and 2025, assuming Avaya recognizes revenue over time according to percentage of completion. 2. Compute the amount of revenue and gross profit or loss to be recognized in 2024 and 2025, assuming this project does not qualify for revenue recognition over time. 3. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2024, assuming Avaya recognizes revenue over time according to percentage of completion. 4. Prepare a partial balance sheet to show…
- Larkspur Financial Services performs bookkeeping and tax-reporting services to startup companies in the Oconomowoc area. On January 1, 2020, Larkspur entered into a 3-year service contract with Walleye Tech. Walleye promises to pay $10,500 at the beginning of each year, which at contract inception is the standalone selling price for these services. At the end of the second year, the contract is modified and the fee for the third year of services is reduced to $8,700. In addition, Walleye agrees to pay an additional $21,000 at the beginning of the third year to cover the contract for 3 additional years (i.e., 4 years remain after the modification). The extended contract services are similar to those provided in the first 2 years of the contract. (a) Prepare the journal entries for Larkspur in 2020 and 2021 related to this service contract. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for…To attract retailers to its shopping center, the Marketplace Mall will lend money to tenants under formal contracts, provided that they use it to renovate their store space. On November 1, 2020, the company loaned $105,000 to new tenants on one-year notes with stated annual interest rates of 10 percent. Interest is to be received by Marketplace Mall on April 30, 2021, and at maturity on October 31, 2021. Required: Prepare journal entries that Marketplace Mall would record related to these notes on the following dates: (a) November 1, 2020; (b) December 31, 2020 (Marketplace Mall’s fiscal year-end); (c) April 30, 2021; and (d) October 31, 2021. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)An agent sells tickets for airlines to customers. In 2021, The total price the customers pay to the agent is $136,450. The agent remits $136,000 to the airlines, and receives $450 as the commission. What is the amount of revenue the agent should recognize in 2021?