Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Textbook Question
Chapter 9, Problem 14PC
Discuss when each of the following types of businesses is likely to recognize revenues and expenses.
- a. A bank lends money for home mortgages.
- b. A travel agency books hotels, transportation, and similar services for customers and earns a commission from the providers of these services.
- c. A major league baseball team sells season tickets before the season begins and signs its players to multiyear contracts. These contracts typically defer the payment of a significant portion of the compensation provided by the contract until the player retires.
- d. A producer of fine whiskey ages the whiskey 12 years before sale.
- e. A timber-growing firm contracts to sell all timber in a particular tract when it reaches 20 years of age. Each year it harvests another tract. The price per board foot of timber equals the market price when the customer signs the purchase contract plus 10% for each year until harvest.
- f. An airline provides transportation services to customers. Each flight grants frequent-flier miles to customers. Customers earn a free flight when they accumulate sufficient frequent-flier miles.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Referring to relevant statutory provisions and common law, discuss whether, for the current income year, the following amounts would be as an allowable deduction against assessable income.
Provision for the estimated amount of trade debtors’ accounts, which might not be collected.
An amount of $9,000 paid to a solicitor for preparing a partnership deed.
Newspapers purchased by an accountant who advises clients on financial and investment matters.
4. Travel cost of a business executive to attend a trade fair in London paid by the employer.
Referring to relevant statutory provisions and common law, discuss whether the following amounts would be as an allowable deduction against assessable income.
Provision of doubtful debts of $4,200 for a detective agency.
Speeding fines of $ 700 paid by an owner to a driver.
An amount of $1,000 paid to a solicitor for preparing a partnership deed.
Travel cost of a business executive to attend a trade fair in Munich paid by the employer.
Newspapers purchased by an accountant who advises clients on financial and investment matters.
For tax purpose, in what circumstances are individuals and companies treated as residents of Australia? Explain based on the the Income Tax Assessment Act 1936 (Cth) and relevant case law.
A new client, the Wolf Company, asks your advice concerning the point in time that the company should recognize revenue from the rental of its office buildings under generally accepted accounting principles. Renters usually pay rent on a quarterly basis at the beginning of the quarter. The owners contend that the critical event that motivates revenue recognition should be the date the cash is received from renters. After all, the money is in hand and is very seldom returned.Required:Do you agree or disagree with the position of the owners of Wolf Company? State whether you agree or disagree, and support your answer by relating it to accrual accounting under GAAP.
Chapter 9 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Consider each of the following scenarios: a. A seller orally agrees with one of its best customers to deliver goods in exchange for 10,000. While the sellers practice is to obtain a written sales agreement, the seller delivered these goods to the customer without a written agreement due to the customers urgent need. b. A seller agrees to provide accounting services to a customer for the next year in exchange for 40,000. While the two parties are negotiating the terms of the agreement and the specific services to be performed, the seller begins to perform some services as a gesture of good faith. c. A seller has a written agreement to deliver goods to a customer for 50 per unit. The price will drop to 45 per unit if the customer purchases more than 2,000 units per month. d. A seller had a written agreement and provided custodial services to a customer for 2,000 per month in a previous year. The contract expired on December 31, 2019. During negotiations for a new contract in January 2020, custodial services were provided at the previous monthly rate and paid for by the buyer. The seller and the customer agree to a new contract on February 1, 2020. The seller is concerned whether a contract existed in January 2020 and whether revenue can be recognized. Required: 1. Determine if a contract exists for each of the scenarios. 2. If it is determined that a contract exists but the seller believes it is probable that it will not collect the expected consideration, how does this affect the sellers ability to recognize revenue?arrow_forwardA contract between one or more parties creates: a. the date that cash is paid by the customer b. enforceable rights and obligations for the parties c. revenue for recognition d. the fixed amount of payments for the good or servicearrow_forwardDetermine whether or not the following benefits are fringe benefits. Provide your reasoning with any relevant reference(s). a) Mobile phone and a laptop provided to a tax manager of an accounting firm who takes them home over the weekends. b) A company provides a car to the managing director for both business and private uses. As the managing director's licence has suspended for 4 months, the company provides the services of a chauffeur to the managing director and subsequently invoiced for $10,000. c) An employer provides biscuits and a fruit platter for the employees to consume on a working day and on the business premises. d) An employer takes out 10 management staff to a restaurant for meal and alcohol to celebrate the end of a successful year, which costed $2,000 in total (or $200 per employee). There was no other non-cash benefit provided to the management staff during the FBT year.arrow_forward
- Which of the following situations violates the matching principle? Some of the amount that was paid for a one-year insurance policy partway through Year 1 is recorded as insurance expense in Year 2. A one-year insurance policy is purchased partway through the year; full payment is recorded as insurance expense when the payment is made. Wages expense is recorded in Year 1 even though payday is not until sometime in Year 2. Sales commissions on all sales made in Year 1 are recorded as an expense in Year 1 even though some of the commissions have not yet been paid.arrow_forwardABC Company determined that it has an obligation relating to employees’ rights to receive salaries for future absences, arising from services already rendered. This obligation is related to vesting rights, and payment for future absences is probable. At year-end, the obligations are reasonably estimated as follows:· Vacation Pay: 1,100,000· Sick Pay: 900,000 How much should be reported as liability for compensated absences? A. Zero B. P 900,000 C. P 1,100,000 D. P 2,000,000arrow_forward. Lola and LoLeng Insurance Brokerage, Inc. (“L&L”) is an insurance broker which liaises between clientsand insurance companies. For this service, it charges commissions and for which it is also charges outputVAT.However, for 6 months in 2018, L&L had been issuing VAT official receipts not only for the commissionsearned but also for the premiums it received from clients in behalf of the insurance companies.The BIR is now assessing L&L for alleged deficiency VAT arising from the premiums it collected from theclients. L&L is arguing that since it is just an insurance broker, it should be liable for VAT only on thecommission, and not on the premiums it collected. Is L&L correct?a. No. L&L became liable for VAT on the gross amount of premiums when it issued VAT official receiptsfor the premiums it received.b. Yes. As a broker, it should be liable for VAT only for the commissions earnedc. Who cares?d. None of the abovearrow_forward
- 14) When examining revenue transactions, which of the following transactions is classified as an exchange transaction? A) When a homeowner pays property taxes B) When a university receives a federal grant that mandates a certain type of research activity C) When an aquatic center receives cash for a group swim D) When an employer deducts money for state tax withholdingarrow_forwardc. Intuit Inc. develops tax preparation software that it sells to its customers for a flat fee. No further Explain when each of the following businesses fulfills the performance obligations implicit in the sales b. Oracle Corp. develops general ledger and other business application software that it sells to its E5-34. a. RealMoney.Com, a division of TheStreet Inc., provides investment advice to customers for an up front fee. It provides these customers with password-protected access to its website, where they 01 Assessing Revenue Recognition Timing and Income Measurem contract and recognizes revenue. Identify any revenue measurement ISsues that could arise can download investment reports. RealMoney has an obligation to provide updates on its they customers. The customer pays an up-front fee for the right to use the software and a monthly its support services. payment is required, and the software cannot be returned, only exchanged if defective. d. Electronic Arts develops and sells…arrow_forwardEmployees' entitlements including annual leave, personal leave and long service leave are reported by businesses in dollar value in the financial statement to help better understand the complete picture of their financial performance and financial position. These entitlements accrue according to the hours worked by the employees. Discuss the accounting treatment for employees entitlements and the relevant accounting standard for guidance.arrow_forward
- ABC Company determined that it has an obligation relating to employees' rights to receive salaries for future absences, arising from services already rendered. This obligation is related to vesting rights, and payment for future absences is probable. At year-end, the obligations are reasonably estimated as follows: Vacation Pay: 1,100,000 Sick Pay: 900,000 How much should be reported as liability for compensated absences? *arrow_forwardWhich of the following is considered or construed as an example of "constructive receipt"? a.Retirement benefits, pensions, gratuities b.Deposits for rentals to answer for damages, restricted as to use c.Interest coupons that have matured and are payable but have been cashed d.Fees paid to a public officialarrow_forwardIssue: Under the Federal Insurance Contributions Act (FICA) every person is an employer if the person employs one or more individuals for the performance of services in the United States. The Internal Revenue Service (IRS) test for an employer/employee relationship is if a business tells, or has a right to tell a worker how, when, and where to work then the worker is an employee, and if they meet these tests, must withhold and pay FICA taxes on those employees’ wages. During your life, you may have noticed many employees performing work for a company without paying FICA taxes (i.e. being paid “under the table”). Questions to be Answered: 1) What are the concerns from a business perspective on this legally questionable practice? 2) What are the concerns from a social perspective on this legally questionable practice?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningAuditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub
- Business/Professional Ethics Directors/Executives...AccountingISBN:9781337485913Author:BROOKSPublisher:Cengage
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...
Accounting
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:South-Western College Pub
Business/Professional Ethics Directors/Executives...
Accounting
ISBN:9781337485913
Author:BROOKS
Publisher:Cengage
Chapter 19 Accounting for Income Taxes Part 1; Author: Vicki Stewart;https://www.youtube.com/watch?v=FMjwcdZhLoE;License: Standard Youtube License