CH 6 Midterm 2 Cheat Sheet PDF

Preview

Summary

notes that can contain pictures of the midterm, cheat sheets, homeworks, lecture notes and class notes....

Description

Connect HW 1) Revenue recognition at a point of time a) Revenue is usually recognized in the first year that it is sold, despite the annual payments needed, coming forward. 2) Timing of Revenue Recognition a) A performance obligation is satisfied over time if at least one of the following three criteria is met: i) The customer consumes the benefit of the seller’s work as it is performed ii) The customer controls the asset as it is created iii) The seller is creating an asset that has no alternative use to the seller, and the seller can receive payment for its progress even if the customer cancels the contract 3) Allocating the transaction price a) When the company gets money for selling a good b) With selling something separately, we would calculate the percentages for the package and multiply by the amount of the money he got for selling the good c) Therefore, he would make a journal entry: Cash

x

Sales Revenue

x

Deferred Revenue

x

4) Service revenue a) When should the company recognize revenue from a sale? Equally throughout the season b) When a company makes a sale, they make a first journal entry generalizing it: Cash Deferred Revenue

x x

c) When deferred revenue is finally being paid off by the month, we write off the deferred revenue entry and finally credit it to service revenue so it will periodically align with the cash account Deferred Revenue Service Revenue

x x

d) Balance Sheet and Income Statements i) The revenue or the deferred revenue realized will be recognized as revenue under the income statement ii) The remaining balance in deferred revenue is included in the current liability section of the balance sheet e) Installment Sales Method

a) How to calculate Gross Profit from each of the years: i) Divide the cost/sales to get the cost recovery percentage ii) Subtract the percentage by one to get the gross profit percentage iii) Multiply that percentage by the sale given in the following year

5) How to find the balance in the deferred gross profit account at the end of 2016 and 2017?

1) For first year: a) Find the initial gross profit b) Subtract the gross profit from the initial 2) For second year: a) Find the initial gross profit b) Add the initial gross profit from this year c) Subtract the gross profit from the initial d) Subtract the gross profit from the second year

6) Installment Sales Method; Journal Entries

1) How to record installment sales a) You debit installment sales as installment receivables/since you did not get the money yet but will get it overtime b) You credit inventory as cost of installment sales c) You subtract both values to get the deferred gross profit Installment Receivables

x

Inventory

x

Deferred Gross Profit

x

2) How to record cash collections from installment sales a) You take the cash collections on installment sales from the following year b) You debit it to cash c) You credit it to installment receivables // concept: you did not get the money yet Cash Installment Receivables

x x

3) How to record the 2016 recognized gross profit from installment sales a) You take cost of installment sales/installment sales to get the cost recovery percentage and subtract that by one b) Take that gross profit percentage and multiply it by the cash collections from the installment sales c) You debit deferred gross profit, taking away from that previous journal entry d) You credit that amount to realized gross profit

Deferred gross profit

x

Realized gross profit

x

4) Computing gross profit if revenue was recognized upon delivery a) You take the amount you sell the inventory for - the inventory cost and you get a certain gross profit b) You record that amount in the first year, and the first year only 5) Computing the amount of gross profit applying the installment sales method a) You find the cost recovery percentage and subtract it by 1 to get the gross profit percentage b) You take that percentage and multiply it by the amount of cash collected for every year 6) Computing the amount of gross profit using the cost recovery method 7) Recording installment sales of $320,000 using the point of delivery method Installment Receivables

x

Sales Revenue

x

8) Recording the cost of the installment sales using the point of delivery method COGS

x

Inventory

x

9) Recording cash collection using the point of delivery method Cash Installment Receivables

x x

10) Recording journal entries using the cost recovery method Installment receivables

How much you got?

Inventory

Cost of GS

Deferred Gross Profit

Difference

11) How to calculate amount of cash collected on installment sales using cost recovery method? a) Calculate COGS b) Add in the provided gross profit 12) How to recognize gross profit using the installment sales method? a) Find the gross profit percentage b) And multiply it by the cash collected...