naegle #3
Occurs when companies change the contract terms while it is ongoing When this occurs companies must determine if it results in a new contract (and performance obligations) or if the current one is simply restructured
contract modifications
In Holdings more than 50%, the investor is deemed to have...
controlling interest
When on corporation acquires more than 50 percent in another corporation
controlling interest
in the fair value method, if FV > Cost, what would the entry be
debit FV adjustment credit unrealized holding gain or loss - INCOME
what should be recorded for cash dividends whenever they own < 20% of a company?
debit cash Credit dividend revenue
When creating a Schedule, bond discount (premium) amortization =
difference between cash received and interest revenue
securities that the company can and plans to hold until maturity date
held to maturity
is the more clearly determinable of (1) the prevailing rate for a similar instrument of an issuer with a similar credit rating or (2) a rate of interest that discounts the nominal amount of the instrument to the current sales price of the goods or services
imputed interest rate
Gains and losses for derivatives are reported in
income
Upfront payments generally relate to initiation, activation, or setup activities for a good or service to be delivered in the future. The upfront payment should be allocated over the periods benefited
nonrefundable upfront fees
Facts: On July 1, 2020, SEK Company sold goods to Grant Company for $900,000 in exchange for a 4-year, zero-interest-bearing note with a face amount of $1,416,163. The goods have an inventory cost on SEK's books of $590,000. SEK uses the perpetual inventory method. Questions: (a) How much revenue should SEK Company record on July 1, 2020? What would the COGS be? (b) How much revenue should it report related to this transaction on December 31, 2020?
notes receivable 1,416,163 CREDITS discount on NR 516,163 Sales rev 900,000 COGS 590,000 CR: Inventory 590,000 Dec. 31 Discount on NR 54,000 CR: Interest Rev 54,000
The amount of shares that a company has the option to purchase in a call option contract
notional amount
In Holdings more than 50%, the financial statements are prepared as... and use what method?
one economic entity using the equity method
when a company offers another company to buy stock a set price for a set amount of time, but the company is not obligated to ever buy the stock at that price
option contract, they have a window to buy the stock at a certain price but they do not have to exercise this right
intrinsic value + time value =
option premium
Companies need to account for the _____ _____ ___ _______if the contract involves a significant financing component (significant time is around more than a year AND/OR the amount is significant)
time value of money
percent complete =
total costs incurred to date / mot recent estimate of total costs
The amount of consideration that a company expects to receive from a customer in exchange for transferring goods and services
transaction price
Allocating the transaction price to separate performance obligations example: Bean offers customers a $2 discount on an originally $3 coffee when they purchase a bag of Motor Moka Beans which sell for $12. what is the transaction price and how will it be allocated?
transaction price = (3-2) + 12 = $13 allocation motor moka = 10.40 coffee = 2.60 WORKING: 12/15*13 = 10.40 3/15*13 = 2.60
True or False: A speculator is typically only in the market for a small period of time
true
Facts: Lonnie Company enters into a contract to build, run, and maintain a highly complex piece of electronic equipment for a period of 5 years, commencing upon delivery of the equipment. There is a fixed fee for each of the build, run, and maintenance deliverables, and any progress payments made are nonrefundable. It is determined that the transaction price must be allocated to the three performance obligations: building, running, and maintaining the equipment. There is verifiable evidence of the selling price for the building and maintenance but not for running the equipment. What should they do for the selling price of running the equipment? what if the selling price is highly variable or uncertain?
try using the market asset approach or the expected cost plus margin approach at worst, use the residual approach
A selling price is _____________ when the company have not set a price since they have not sold any of the good or services yet
uncertain
If a company's portfolio has a cost of 30,000 and a fair value of 34,000, this would be an
unrealized gain because they have not cashed in their portfolio yet. The fair value has simply increased reported in other comprehensive income
A selling price is highly ________ when companies offer different prices to different customers around the same time
variable
When is the expected value method of variable consideration good to use?
when a company has had a lot of similar contracts in the past
debt securities recognize interest _____ ___________ and gains and losses ____ ______
when earned upon sale
When does one need to establish a fair value adjustment account?
when they are analyzing a portfolio, not a single investment
For Equity Investments, when does a company have to write off individual stock investments?
whenever the impairment is PERMANENT
In Holdings between 20% and 50%, what happens when net income is reported? what is the entry?
you would need to multiply NET INCOME by their % Ownership Debit Equity Investment Credit Investment Income
Assume Apple enters a call option contract with nike. In the contract, it states that Apple can purchase Nike stock at $100 per share. When would this contract have value for Apple and when would it be worth less?
It has value if Nike Stock goes above $100 it has value if it never does, it has no value
net income + other comprehensive income
comprehensive income
True or False: Contracts can be written, oral, or implied from customary business practice
True
held to maturity securities use the valuation method of....
amortized cost
The price paid for the security, adjusted for any discount or premium
amortized cost or carrying value
FASB requires that the commission (for an agent) must be a fixed ......
amount and/or percentage
The person the consignor hires to sell the goods to end customers these people are normally paid through
consignee commission
When a seller provides goods to a customer who will sell them to end customers, but the seller does not pass the title or recognize revenue until it reaches the end customer this describes
consignment
Consignments The company that has or manufactures the goods
consignor
Is an agreement between two or more parties that creates enforceable rights or obligations
contract
when the agent only recognizes the commission revenue they receive on sale is called the ____ method and what is special about this one?
net method required by FASB
Companies generally recognize revenue on the basis of the fair value of what is received is the concept of...
noncash consideration
How to report Debt Securities if they... 1. plan to sell 2. do not plan to sell
1. fair value 2. amortized cost approach
How to report Equity Securities if they... 1. plan to sell 2. plan to exercise control
1. fair value 2. equity method
The components of a contract (5)
1. has commercial substance 2. parties approve contract 3. identification of rights of each party 4. payment terms identified 5. probable that payment will be collected
Five Steps for revenue recognition
1. identify contract 2. identify performance obligations 3. determine transaction price 4. allocate price to obligations 5. recognize revenue when performance occurs
where are holding gains or losses recognized for held to maturity securities, trading securities, and available for sale?
1. not recognized for held to maturity 2. in income for trading securities 3. in other comprehensive income for available for sale
In order to be considered "held-to-maturity" then if must meet BOTH of these requirements
1. positive intent (plan to hold) 2. the ability to hold them till maturity
Companies recognize revenue over a period of time if one of the following 3 criterias are met:
1. the customer receives and consumes benefits as the seller performs (on going performance) 2. the customer controls the asset as it is created or enhanced (like building a house on a customer's property) 3. the company does not have an alternative use for the asset created AND either (1) the customer receives benefit as company performs OR (2) the company has the right to payment which is enforceable
A company will account for a contract modification as a new contract if BOTH of the following are met
1. the promised goods or services are distinct 2. the company has the right to receive an amount of payment that reflects the standalone selling price of the promised goods or services
Companies may realize the value of available for sale securities by either: (2)
1. through collection of cash flows 2. selling the securities
Facts: Peabody Construction Company enters into a contract with a customer to build a warehouse for $100,000, with a performance bonus of $50,000 that will be paid based on the timing of completion. The amount of the performance bonus decreases by 10% per week for every week beyond the agreed-upon completion date. The contract requirements are similar to contracts that Peabody has performed previously, and management believes that such experience is predictive for this contract. Management estimates that there is a 60% probability that the contract will be completed by the agreed-upon completion date, a 30% probability that it will be completed 1 week late, and only a 10% probability that it will be completed 2 weeks late.
147,500 is the variable consideration amount
Assume that the company purchases a call option contract on January 2, 2020, when Laredo shares are trading at $100 per share. The contract gives it the option to purchase 1,000 shares (referred to as the notional amount) of Laredo stock at an option price of $100 per share. The option expires on April 30, 2020. On March 31, the price per share is 120, what would the intrinsic value be? How would this increase in intrinsic value be recorded?
20,000 120*1000 = 120,000 - 100 * 1000 = 100,000 DR: Call option 20,000 Cr: Unrealized Holding gain or loss - Income 20,000
A company sells product A,B, and C for 100,000. The standalone prices for A and B are 50,000 and 30,000 respectively, but utilize the residual approach for product C. what would C's standalone price be considered?
20000 (the excess)
Facts: Sansung Company offers its customers a 3% volume discount if they purchase at least $2 million of its product during the calendar year. On March 31, 2020, Sansung has made sales of $700,000 to Artic Co. In the previous 2 years, Sansung sold over $3,000,000 to Artic in the period April 1 to December 31. Assume that Sansung prepares financial statements quarterly. How much revenue should be recorded in the first 3 months of 2020? What would the entry be? IF they meet the discount threshold, they should make the following entry to record collection of Accounts Receivable? If they do not meet what would be recorded?
679,000 = 700,000 * .97, this is assuming the 3% discount will be received by Artic since they spent 3 mil last year A/R 679,000 CR: Sales Rev 679,000 if they meet threshold Cash 679,000 CR: A/R 679,000 if they do not meet threshold: Cash 700,000 CR: sales rev 679,000 CR: Sales discount forfeited 21,000
On March 1, 2020, Margo Company enters into a contract to transfer a product to Soon Yoon on July 31, 2020. The contract is structured such that Soon Yoon is required to pay the full contract price of $5,000 on August 31, 2020. The cost of the goods transferred is $3,000. Either party can unilaterally terminate the contract without compensation. Margo delivers the product to Soon Yoon on July 31, 2020. to record sale and related cost of goods sold would be: on what date?
A/R 5,000 Cr: Sales Rev 5,000 COGS 3,000 CR: Inventory 3,000 on July 31st since the product is delivered then, so performance obligation is complete
On March 1, 2020, Margo Company enters into a contract to transfer a product to Soon Yoon on July 31, 2020. The contract is structured such that Soon Yoon is required to pay the full contract price of $5,000 on August 31, 2020. The cost of the goods transferred is $3,000. Either party can unilaterally terminate the contract without compensation. Margo delivers the product to Soon Yoon on July 31, 2020. to receive cash payment on ______ would be
August 31 Cash 5,000 CR: A/R 5,000
A contract where a company bills a customer for a product and passes along the title of for the goods, but the product is not immediately given to the customer (meaning the seller keeps it for a certain period of time)
Bill and hold arrangements
What do companies use to measure the impairment of receivables?
CECL - Current Expected Credit Loss
The amount of credit loss on an available for sale security is limited to...
Carrying Value - Fair Value
To record the settlement of the call option, (1,000 shares with Fair value of $15, purchased at $10 and a remaining time value option of 60 at time of excercise) you would need to record:
Cash 15,000 Loss on Settlement 60 Credit: Call option 15,060
On January 23, 2021 they sold all of their Northwest Industries for proceeds of 287,220 (cost of 259,700) so they would need to record
Cash 287,220 Credits: gain on sale of investments 27,520 equity investments 259,700
When it is probable that a company will NOT collect the entire amount of a transaction, they should record
Debit: Allowance for Doubtful Accounts Credit: Accounts Receivable both for the ENTIRE amount
Assume that the company purchases a call option contract on January 2, 2020, when Laredo shares are trading at $100 per share. The contract gives it the option to purchase 1,000 shares (referred to as the notional amount) of Laredo stock at an option price of $100 per share. The option expires on April 30, 2020. What would the company record if they purchased the call option? what would this payment be called?
DR: Call Option 400 CR: Cash 400 called the option premium
Durham company uses the Equity method. Durham Company holds a 28 percent stake in Suppan Inc. Durham purchased the investment in 2020 for $930,000. At December 31, 2020, the fair value of the investment is $900,000. Durham elects to report the investment in Suppan using the fair value option. The entry to record this investment is as follows.
DR: Unrealized holding gain or loss - Income 30,000 Cr: Equity Investments 30,000 it is important to realize they elect to use the FV adj. for this investment
Impairment of Value - Debt Investments - Held to Maturity Strickler Company holds held-to-maturity bond securities with a par value and amortized cost of $1 million. The fair value of these securities is $800,000. In evaluating the securities, Strickler now determines that it is probable that it will not collect all amounts due. What should they record?
Debit Allowance for Doubtful Accounts 200,000 Credit Accounts Receivable 200,000 Cost - FV = 200,000
In Holdings between 20% and 50%, how are cash dividends reported and why?
Debit Cash Credit Equity Investments This is because they are receiving cash, but they are paying out part of the equity that they own in the form of dividends
Equity Security Portfolio December 31, 2020 Northwest Industries Cost = 259,700 FV = 275,000 Campbell Soup Cost = 317,500 Fair Value = 304,000 What entry would be necessary on December 21 2020?
Debit FV Adj 1,800 Credit Unrealized holding gain or loss - income 1,800 FV - COST for both then combine
what would the journal entry be to close other comprehensive income (unrealized gains) at the end of the year?
Debit Unrealized holding gains or loss - Income Credit accumulated other comprehensive income
What is the journal entry to recognize impairment of receivables?
Debit bad debt expense Credit allowance for doubtful accounts
Robinson Company purchased $100,000 of 8 percent bonds of Evermaster Corporation on January 1, 2019, at a discount, paying $92,278. The bonds mature January 1, 2024, and yield 10%. Interest is payable each July 1 and January 1. Robinson records the investment as follows.
Debit: Debt Investments Credit: Cash both for 92,728 (the price that they paid)
A market appraisal indicates the time value of the option to be 100, (previously valued at 400) on March 31, so what would they record?
Debit: unrealized holding gain or loss - income 300 Credit: call option 300
Robinson Company purchased $100,000 of 8 percent bonds of Evermaster Corporation on January 1, 2019, at a discount, paying $92,278. The bonds mature January 1, 2024, and yield 10%. Interest is payable each July 1 and January 1. What would the first semi-annual interest payment be?
Debits: Cash 4,000 Debt Investments 614 Credit Interest Revenue: 4,614
On December 31, 2020, the cost of this security is $100,000; its fair value at December 31, 2020, is $125,000. If Hardy chooses the fair value option to account for the Fielder Company investment, it makes the following entry on December 31, 2020.
Dr: Debt Investments 25,000 Cr: unrealized holding gain or loss - income 25,000
Variable consideration: probability weighted amount in a range of possible consideration amounts
Expected Value
When creating a Schedule, Cash received = ....
Face value of bond * face % of bond * months of payment if semi annual 6/12
Facts: Gomez Software Company enters into a contract with Hurly Company to develop and install customer relationship management (CRM) software. Progress payments are made upon completion of each stage of the contract. If the contract is terminated, then the partly completed CRM software passes to Hurly Company. Gomez Software is prohibited from redirecting the software to another customer. At what point should Gomex software company recognize revenue related to its contract with Hurly Company?
Gomez should recognize revenue as they perform the work on the software because they have no alternative use for the software
Example: Morgan Inc., an equipment dealer, sells equipment on January 1, 2020, to Lane Company for $100,000. It agrees to repurchase this equipment (an unconditional obligation) from Lane Company on December 31, 2021, for a price of $121,000. Assume a 10% interest rate is imputed from the agreement. Morgan company makes the following entries to this agreement. Make the entries for January 1 2020 December 31,2020 December 31 2021 (2)
Jan 1 Cash 100,000 Cr: Liability to Lane 100,000 Dec 31 2020 Interest Expense 10,000 Cr: Liability to Lane 10,000 100,000 * 10% Dec 31 2021 Interest Expense 11,000 Cr: Liability to Lane 11,000 Liability to Lane 121,000 Cr: Cash 121,000
Repurchase Agreements: Example: Morgan Inc., an equipment dealer, sells equipment on January 1, 2020, to Lane Company for $100,000. It agrees to repurchase this equipment (an unconditional obligation) from Lane Company on December 31, 2021, for a price of $121,000. Is this a sale?
No, this is not because Morgan Company still has control since they agreed to buy it back at a higher price --> financing transaction
Recognize revenue when each performance obligation is satisfied
Revenue recognition principle
Facts: On January 1, Shera Company enters into a contract with Hornung Inc. to perform asset-management services for 1 year. Shera receives a quarterly management fee based on a percentage of Hornung's assets under management at the end of each quarter. In addition, Shera receives a performance-based incentive fee of 20% of the fund's return in excess of the return of an observable index at the end of the year. Shera accounts for the contract as a single performance obligation to perform investment-management services for 1 year because the services are interdependent and interrelated. To recognize revenue for satisfying the performance obligation over time, Shera selects an output method of measuring progress toward complete satisfaction of the performance obligation. Shera has had a number of these types of contracts with customers in the past. Question: At what point should she recognize the management fee and the performance based fee?
She should recognize the management fee each quarter since she will know that amount. She should wait till the end of the year to record the performance based fee, since it is highly dependent on the market action, which is highly unpredictable. Therefore, she should wait to recognize until the end of the year when it is KNOWN.
Butler Company sells $450,000 (cost $280,000) of fireplaces on March 1, 2020, to a local coffee shop, Baristo, which is planning to expand its locations around the city. Under the agreement, Baristo asks Butler to retain these fireplaces in its warehouses until the new coffee shops that will house the fireplaces are ready. Title passes to Baristo at the time the agreement is signed. When should butler recognize revenue from this bill and sale? March 1st entry
They should recognize this contract when it is signed since the Baristo now has control (title) and a right to pay for the fireplaces. Also, because it meets the conditions of recognizing bill and hold arrangement which are 1. the reason is substantive (they do not have other stores yet) 2. the title was transferred 3. the product is ready for transfer 4. seller cannot use the product or sell to another customer A/R 450,000 Cr: sales rev 450,000 COGS 280,000 Cr: Inventory 280,000
If an available for sale security has a Carrying Value is 100,000 and the fair value is 90,000, what should the company do if the expected credit loss is 15,000?
They should sell the security for 90,000 because they would lose 10,000 rather than 15,000 which is expected
Can companies choose to report investments at the fair value method? When does this decision occur, and can it be changed?
Yes at the start of each new investment, but it cannot be changed
Evaluate the market in which the company sells goods or services and estimate the price that customers in that market are willing to pay for those goods or services. This might also include referring to price from the company's competitors for similar goods and services and adjusting those prices as necessary to reflect the company costs and margins represents the ________ allocating transaction price approach
adjusted market assessment approach
advantage and disadvantage of completed contract method
adv: only records financial results and not estimates of unperformed work dis: does not keep up with current performance when contract lasts more than one accounting period
Middle man who organizes the transaction
agent
Companies recognize revenue and gross profit only at point of sale -
completed contract method
Let's say Apple gives Microsoft an option contract where Microsoft can buy Apple stock for $500 at any point during the next four weeks. Since Apple is holding their stock price for Microsoft, Microsoft has to pay them $5,000 as a holding fee this is an example of what would the cost of stock be if Microsoft buys 1,000 shares? what if they do not purchase stock at all?
an option contract $500 * 1,000 + 5,000 holding fee = 505,000 they would still incur the 5,000 holding fee
__________ attempt to capitalize on inefficiencies in the market, these people hope to make money on forward contracts while also making money on the commodities also
arbitrageurs
Recognizes and measures revenue based on changes in assets and liabilities
asset-liability approach
How are derivatives reported in the financial statements?
assets and liabilities
Meets agreed upon specifications in the contract at the time the product is sold Product will live up to what it is expected to do Typically included in the purchase price of the product
assurance type warranty
Assume a company is planning to purchase aluminum in January 2021, but it is only September of 2020. The company is concerned aluminum prices will skyrocket and believe they will have to spend more money if they wait until January. Assume the company gets to the end of the year and the current price of aluminum is $25 more than their spot price in the futures contract, which was to purchase 1,000 tons of aluminum at 1,550 a ton. How would they report the purchase of aluminum? How would they correct this entry after?
at the market cost of 1,575 Dr: Aluminum Inventory 1,575,000 Credit Cash 1,575,000 Cash 25,000 Futures contract 25,000
why do companies use derivatives generally?
because the allow them to lock in deals at certain prices that allow them to know that they can turn a profit it gives them guarantees when the market becomes unpredictable
If a potato producer expects their price of potatoes to drop in the coming months, they may sign a forward contract with McDonalds. By doing this, McDonald's agrees to pay the current price of potatoes, in order to receive potatoes in 2 months. Why would they agree to this? What are both companies acting as?
because they both know they can profit at the current price of potatoes hedgers
How can companies report other comprehensive income?
by itself or in a combined statement with net income
Gives the holder the right, but not obligation, to buy shares at a preset price
call option
When creating a Schedule, interest revenue = ....
cash paid for bond * mkt % * months of payment
Holdings of less than 20% - fair value method Illustration Upon acquisition, companies record equity securities at cost. On November 3,2020 Republic Corporation purchased common stock of 3 companies listed below: Northwest Industries 259,700 Capmbell Soup 317,500 St. Regis Pulp 141,350 Total Cost 718,550 to record purchase of investments: On December 6, 2020, Republic receives a cash dividend of $4,200 on its investment in the common stock of Campbell Soup Co. It records the cash dividend as follows.
equity investments 718,550 CR: cash 718,550 cash 4,200 CR; div rev 4,200
Holdings between 20% and 50% use what method?
equity method
The risk that changes in foreign currency exchange rates will negatively impact the profitability of their international business
exchange rate risk
Forecast expected costs of satisfying a performance obligation and then add an appropriate margin for that good or service
expected cost plus a margin approach
The current price of the security on an applicable way of selling the security, like the price on the stock exchange, as of the selling date / valuation date
fair value
What method are derivatives reported at?
fair value
trading and available for sale securities use the valuation method of...
fair value
Cash flow hedges are reported at _____ and they record gains or losses in equity as part of _____________________
fair value other comprehensive income
Holdings < 20% are reported using what method? these investors are known as...
fair value passive investors
True or False: the consignee sometimes recognizes inventory on their books
false, they never recognize inventory on their books
Fly Away Travel sells airplane tickets to British Airways to various customers who are the principal and agent?
fly away = agent British Airways = principal
On April 16th the company settles the option before it expires at a price of 115 a share for 1,000 shares (last recorded at $120) and a time value call option price of 60 (currently at 100) , what would the company need to record?
for intrinsic value Debit: unrealized holding gain or loss - Income 5,000 Credit: Call option 5,000 for time value Debit: unrealized holding gain or loss - Income 40 Credit: call option 40
when a company does not have the funds to invest in stock at the moment, they agree to purchase stock of another company at set price and date
forward contract
Dell thinks that Google stock will increase in the next three months so they agree to pay Google for 10,000 shares at the current price of $110 per share in 3 months this is an example of.... why would dell do this as opposed to just buying stock now?
forward contract, dell would do this because they likely do not have the funds to invest at the current time
Gives the holder the right and the obligation to purchase an asset at a preset price at a specified date, but does so in a standardized way so that it can be traded on the market (a forward contract does not provide these specifications to be traded on the market)
futures contract
A principal will not recognize revenue until the customer ....
has received the good or service
Include "costs incurred, labor hours worked" Most likely associated with measuring the costs incurred as compared to the total costs expected to complete the project (a cost to cost method) which is the most common way
input measures
The risk that the fair values or cash flows of interest sensitive assets or liabilities will change if interest rates increase or decrease
interest rate risk
The difference between the market price and present strike price (at any point in time)
intrinsic value
the company that is having its shares purchased
investee
person / company buying the shares of a corporation
investor
Example: a company sells 100 cameras ON credit to a customer for $100 a piece on January 12th,The customer can return within 45 days if they are unused after purchase date. The customer returns 2 cameras because they were of an incorrect color on January 24th. The company needs to prepare financial statements as of January 31st and estimates that only one more camera will be returned within the remainder of the 45 days. The cost per camera is $60. January 12 - the credit sale and inventory January 24 - the return of the two cameras January 31 - to record for estimates of returns in the remainder of the 45 days period
jan 12 A/R 10,000 CR: Sales Revenue 10,000 COGS 6,000 CR: Inventory 6,000 Jan 24 Sales Returns and Allow. 200 CR: A/R 200 Returned Inventory 160 CR: COGS 160 Jan 31 sales returns and allow. 100 CR: allowance for sales returns and allow 100 estimated inventory returns 60 Cr: COGS 60
Occurs when there is a significant increase in costs, but not to the extent that all of the gross profit is eliminated this only impacts the percentage of completion method, why?
loss in the current period on a profitable contract this only effects the percentage of completion method because the completed contract method does not recognize anything until the contract is complete and they still expect to turn a profit
Variable Consideration: the single most likely amount in a range of possible outcomes when is this method good to use?
most likely amount when the contract only has two possible outcomes
Assume a company is planning to purchase aluminum in January 2021, but it is only September of 2020. The company is concerned aluminum prices will skyrocket and believe they will have to spend more money if they wait until January. Assume the company gets to the end of the year and the current price of aluminum is $25 more than their spot price in the futures contract, which was to purchase 1,000 tons of aluminum at 1,550 a ton. Since this futures contract now has value, this value needs to be recorded in the financial statements. Since this is an anticipated transaction, it will go into ________ what would need to be recorded to update the value of the futures contract?
other comprehensive income Dr: futures contract 25,000 Cr: unrealized holding gains or losses - equity 25,000 $25 over spot price * 1,000 tons
where are sales discounts forfeited recorded in the income statement?
other revenues and gains
Include "units of delivery measured as tons produced, floors of building completed, miles of highway completed" Unit of delivery method
out put measures
revenue to be recognized to date =
percent complete * expected total revenues
Recognizes revenues, costs, and gross profit as a company makes progress toward completion on a long-term contract.
percentage of completion method
a promise to provide a product or service to a customer
performance obligation
Company with goods and services
principal
A company acts as a middle man between sellers and customers' describes a
principal - agent relationship
When creating a schedule, Carrying value =
prior year CV + (-) bond discount (premium) amortization
The company receiving the asset has the option to ____ (force the selling company to buy back the asset)
put option
If a company receives interest of 3,000 during the year this would be a
realized gain, in net income
if a company sells securities that cost them 20,000 for 22,000, this would be a
realized gain, this would be in net income
allow companies to transfer an asset to a customer but have a forward obligation (fixed agreement to buy it back) or call option to repurchase the asset at a later date at their own discretion
repurchase agreement
Give the product with the unknown standalone selling price the remaining price after deducting the others price in the bundle
residual approach
The New Standard for revenue recognition adopts an asset-liability approach as the basis for the revenue recognition and it is called
revenue from contracts with customers
current period revenue =
revenue recognized to date - revenue recognized in prior periods
Now assume that Allied processes the aluminum into cans. The total cost of the cans is 1,700,000 and they sell the cans for 2,000,000. Also, since the anticipated transaction of the futures contract now has value, what must be recorded?
sale: cash 2,000,000 CR: sales rev 2 mil COGS 1,700,000 CR: inventory 1,700,000 anticipated transaction correction: unrealized holding gains or losses - equity 25,000 CR: COGS 25,000 (this reduces COGS to 1,550,000 which is what they paid in the first place)
sales returns and allowances is a contra account to
sales revenue
Provide an additional service beyond the assurance type warranty, so it is not something that is included in the product Typically an additional fee to obtain this type of warranty, so it is considered a separate performance obligation
service type warranty
Holdings between 20% and 50% are deemed to have...
significant influence
Let's say a company selling a consulting type package that includes a license for a related software program. How many performance obligations would be recorded?
since there is no intent or indication that these items could or would be considered distinct they would be recorded as one performance obligation
a third party that study industries and make educated guesses at where the price of a product will go, create a forward contract with a producer in that industry, then in turn sells the forward contract to a consumer
speculator
if a _________________ thinks the price of potatoes will rise, they create a forward contract with a potato producer, then goes and sells this contract to McDonald's
speculator
The price an investor would pay today if they purchased the item in a futures contract
spot price
transaction price allocation is typically based on the items...
stand alone selling price
The preset price within a call option
strike price or exercise price
How do consignors recognize revenue that it sold through a consignee?
the consignee provides periodic sale accounts to the consignor so they can report them accordingly
principal - agent relationship when an agent records ALL of the sale amount as revenue then reduces it by paying the principal is called the
the gross method
Peabody Construction Company enters into a contract with a customer to build a warehouse for $100,000, with a performance bonus of $50,000 that will be paid if it is completed on time, which has a 60% chance of happening. What variable consideration method should be used?
the most-likely method
the company buying > 50 % of a corporations stock is known as
the parent company
the company selling > 50% of their company to another corporation is called
the subsidiary company
In Holdings between 20% and 50%, how are adjustments for fair value recognized?
they are not recognized because these owners are paid out via net income
Durham company uses the Equity method. Durham Company holds a 28 percent stake in Suppan Inc. Durham purchased the investment in 2020 for $930,000. At December 31, 2020, the fair value of the investment is $900,000. Durham elects to report the investment in Suppan using the fair value option. How would they recognize dividend payments for the Suppan Investment? What would the entry be?
they would recognize dividend payments under the fair value method since they elected this at the beginning Dr: Cash Cr: dividend revenue
The option's value over and above its intrinsic value Shows that the option has a fair value greater than zero since there is some expectation that the price of the shares will increase above the strike or exercise price
time value
