Case 5-3 Joan Holtz

CASE 5-3* – JOAN HOLTZ Question 1: Electricity usage normally constant for every month, the unreported usage for December will be accounted in following month, in this case, it will be on January. Revenues for the year should be physically accurate. Question 2: It may be counted as $5,000 as revenue in 2010.

This is because the payment was made on July 2010 whereby the service provided only 6 months for year of 2010 (50% of the $10,000). The balance should be counted in following year, 2011.Another way may taken to account is by counting the whole $10,000 as payment for year 2001 and others upcoming services to be billed separately at each month the service provided. Question 3: No revenue should be counted on 2010. Revenue should be counted until Raymond completed the services as in sales agreement or purchase orders whereby the revenue should be counted only after service provided on 2011.

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Revenue still has not yet booked should a passenger cancel his reservations before the trip took place.The difference would be made when the trip has taken off. Question 4: No revenue is recognized in 2010. If the nursery owner wanted to keep trees growing for a year more, his revenue might be higher. This means, he should not report any revenue in 2010. Furthermore, there is no sales order or goods have not been delivered for the owner to report revenue on 2010.

Question 5: Unbilled receivables are earned revenue, as the time the architects used for the project is being referred as service, on accrual basis (given that is the service is received by the customer).But then, the receivable (which is the architects’ time), counted as unbilled receivables, is not being billed yet to their customer, hence come the term unbilled receivables. It is a big difference to consider the in-process work as receivables rather than inventory. Inventory is something that can be sold/rent/use, such as physical products or place (e. g. theater’s seat, bed, and room).

Whereas, the in-process work is considered as receivables because the revenue is already earned by the firm. Question 6: The coupon should be considered as part of cost of sales.The coupons’ printing cost, material, packaging into the jar, grocers’ handling cost and the redemption cost are all need to be considered as promotional cost because the manufacturer wants to introduce the instant tea to the market. The cost should be in the sales revenue of tea as it directly promote the instant tea, although it can attracts the customer to buy the coffee as they see it a valuable buy when comparing with other brands. Question 7: The selling of the traveler’s checks should be considered as a sale.

But in balance sheet, the transaction is under the liabilities tab, as the bank ‘owes’ the money to the holder of the traveler’s checks, as he/she do not exchange the checks yet. Question 8: Yes, Manufacturer A will recognise revenue in 2010 as Manufacturer A has sold merchandise to Wholesaler B with the inventory delivered. Question 9: It should not recognise the $10,000 as revenue in the year in which the franchise agreement is signed as the revenue should only be recognised until the one-week initial training course is provided and the nationwide referral system and marketing and management aids are fully operational or in place.After the market has become saturated, its profit will shrink due to lower revenue recorded (due to absence of the franchise fee accounts) while the operating costs remains could not be brought down immediately as it will incur some costs related to the delivery of its services (one-week training course and setting up of the referral system and marketing and management aids) which will only be delivered some time after the signing of the ranchise agreement. Question 10: It should recognise the entire $570,000 in 2010 as the products have already been delivered to the customer.

As the customer is new to Tech-Logic, there is no information available to ascertain its credit track record apart from an unconfirmed source of news. Hence, the doubt of the collectability of the $570,000 is only due to unsubstantiated rumours and not the customer’s poor credit track record.